Commodity Options Traders Make Record Bearish Bets After Oil, Metals Rally

Commodity options traders have increased bearish bets to a record against an exchange-traded fund tracking energy and metals prices after a rally to a two- year high.

The open interest for puts to sell the iShares S&P GSCI Commodity-Indexed Trust doubled this week to a record 18,797 outstanding contracts, lifting the ratio of puts per call to a three-year high of 3.28-to-1. Traders betting on a 5.4 percent drop in five weeks lifted put volume to a record 7,915 contracts yesterday, 720 times the number of calls to buy.

“Investors see the potential for downside,” said Paul Justice, director of ETF research at Morningstar Inc. in Chicago. “You’re going to see less investor interest in commodities as the economy continues to recover and people feel more comfortable getting back into stocks.”

The Standard & Poor’s 500 Index, the benchmark measure of U.S. stocks, is poised for a seventh straight weekly gain, the longest winning streak since May 2007, amid growing confidence in the economy. Commodities led gains last year as stocks, bonds, the dollar and raw materials rose together for the time since 2005 after the global economic recovery proved resilient. Oil and corn have climbed to two-year highs and commodities such as copper and cattle have risen to records.

The ETF lost 0.7 percent to $34.35 yesterday, retreating from the highest closing level since November 2008. The fund has advanced 6.5 percent from a year ago and is up 30 percent from a one-year low in May.

Two-thirds of the ETF’s assets are invested in energy commodities, according to the iShares website. Seventeen percent are in agriculture and the remainder industrial metals, precious metals and livestock.

16 Times Average

Put volume was 16 times the four-week average yesterday and topped the prior record of 7,463 contracts on Jan. 11. Almost all those bearish trades were concentrated in the ETF’s February $33 puts, which had an open interest of 15 existing contracts before yesterday.

“It’s a bet against commodities,” said Etai Friedman, head derivatives trader at MKM Partners LP in Stamford, Connecticut. “The customers who bought these options are betting on a larger-than-5 percent drop in the ETF.”

February $33 puts on the iShares S&P GSCI Commodity-Indexed Trust closed at 50 cents yesterday and traded 7,900 times, which if exercised would give the right to buy 790,000 shares. A buyer paying that price starts to profit if the ETF falls at least 5.4 percent to below about $32.50, surpassing the strike price by more than the cost of the contract, before next month’s options expire Feb. 18.

Crude, Corn

Crude oil climbed to a 27-month high Jan. 12 after U.S. inventories declined more than forecast. Prices gained 3.8 percent this week through yesterday. Futures fell 0.5 percent to $91.40 yesterday in New York.

Corn and soybean futures rose yesterday, extending a rally to the highest prices since July 2008, on signs that inventories will be lower than expected in the U.S., the world’s largest grower and exporter. Hog futures fell from an eight-month high on signs of rising U.S. pork supplies, while cattle prices dropped from a record in Chicago. Copper futures fell for the first time in three days. On Jan. 3, the metal’s most-active contract rose to a record $4.498 a pound.

“All these markets are due for a correction,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “The commodities story is a very sexy story right now because you have the dollar coming back down again. I think the smart money is waiting for a pull back in prices before they’re going to buy.”

To contact the reporters on this story: Cecile Vannucci in New York at; Jeff Kearns in New York at

To contact the editor responsible for this story: Nick Baker at

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