Massive Spread Trade Sends SPY Call Volume Soaring

by Celeste Taylor | Jan 26, 2017

The Dow Jones Industrial Average (DJIA) finally hit the 20,000 mark, and the SPDR S&P 500 ETF Trust (NYSE:SPY) is also notching new record highs. With market momentum building, SPY could be preparing to take its upswing even higher. It looks like one trader in particular is hoping for another move to the upside before February options expiration.

SPY is little changed this morning at $229.65, after touching a new record high of $229.71 earlier today. SPY has tacked on more than 26% since its February 2016 lows, boosted by the recent support of its 30-day moving average, and may finally be breaking out of its post-Fed sideways pattern. Yesterday, approximately 2 million SPY calls crossed the tape -- more than twice the average daily volume. By the close of trading, SPY call volume registered in the 97th percentile of its annual range.

Drilling down, one trader initiated a call spread on front-month SPY options. A block of 250,000 February 232 calls was sold to open at 75 cents each  while a block of 125,000 February 230 calls was bought for $1.52 per contract. The net debit on this call spread was just 2 cents per contract, according to Trade-Alert, with the SPY February 232 call strike now emerging as the biggest open interest position on the S&P tracker.

By opening this call spread, the trader is betting on the SPDR S&P 500 ETF Trust (NYSE:SPY) to rise above $230 by the time these options expire on Feb. 17 -- or it could be a low-cost hedge to a short equity position, albeit one that leaves the trader exposed to steep losses on a SPY move above $232.

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