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Option Volume Briefs: Small-Cap Bears Expect Big Downside

Put buying ramps up in the iShares Russell 2000 Index ETF (IWM)

by 9/28/2012 2:46 PM
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The iShares Russell 2000 Index (ETF) (NYSEARCA:IWM - 83.85) -- which simulates the returns on the small-cap-rich Russell 2000 Index (RUT - 841.68) -- is seeing some heavy bearish speculation today. Roughly 180,000 put contracts have traded, with more than 35,000 changing hands at the November 76 strike.

Heading into the session, this out-of-the-money strike was home to just 11,000 contracts, so the lion's share of today's activity is likely on the opening side. What's more, the majority of the action has gone off at the ask price, suggesting puts are being bought-to-open. The average trading price so far today is $0.52 per contract.

Traders buying puts will profit on the trade (at expiration) if the ETF is sitting below $75.48, or the strike price less the premium paid. This is roughly a 10% drop from current levels and represents territory IWM has not touched since late June.

Today's put buying is in line with recent trends. The 10-day put/call volume ratio of buy-to-open activity on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 2.26, indicating that 226 puts have been bought to open for every 100 calls during the past two weeks.

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