Put volume on an industrial exchange-traded fund jumped to five 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 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.
More than 84,700 puts traded today, eight times the number of calls. The most-traded contracts were the April $35 puts, which accounted for almost one-fourth of all put volume and rose 56 percent to 70 cents. The ETF dropped 2 percent to $36.25.
“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 4.7 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 22.97 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.