Put volume on an industrial exchange-traded fund jumped to four times the four-week average on trades betting the share price will decline.
Investors bought 15,000 April $35 puts to sell the Industrial Select Sector SPDR Fund (XLI) and sold the same number of April $31 puts in a spread strategy, according to a report from options strategists at Susquehanna Financial Group LLLP in Bala Cynwyd, Pennsylvania, and data compiled by Bloomberg. Another 5,000 March $36 puts were bought, while the same number of March $34 puts were sold. The March options expire next week.
Almost 72,000 puts traded as of 1:45 p.m. in New York, four times the four-week average. The most-traded contracts were the April $35 puts, which accounted for almost one-third of all put volume and rose 29 percent to 58 cents. The ETF dropped 1.7 percent to $36.35.
“It was a one-week and one-month bear put spread on the industrials,” said Joseph Cusick, senior market analyst at OptionsXpress Holdings Inc., a Chicago-based online brokerage. Oil price are high, “potentially impacting consumers. The fear is that there could be a universal slowdown. Industrials would be an area that would be, for a period of time, hit if something like that were to occur.”
The ETF has declined 4.5 percent since its 32-month high on Feb. 18. Its implied volatility, the key gauge of option prices, for at-the-money options expiring in 30 days rose to 23.44 from 20.62 yesterday. Oil surged to a 29-month high this week amid escalating violence in Libya.
Calls give the right to buy 100 shares of a security for a certain amount, the strike price, by a set date. Puts convey the right to sell. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.
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