How Options Traders Played Last Week's Selloff

Put-buying sprees don't really lead to stock market outperformance, though

Senior Quantitative Analyst
Mar 15, 2023 at 8:05 AM
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Traders were buying up put options at the end of last week during the collapse of Silicon Valley Bank. Whether hedging their positions or speculating on downside, it was indicative of the uncertainty heading into the weekend. Focusing on buy-to-open (BTO) data we receive from three different exchanges, put buying spiked on individual stocks leading to one of the biggest single-day BTO put/call ratios we’ve seen over the past 10 years. The chart below goes back to 2015 showing only a few spikes above one including last Friday.

SPX BTO pc ratio spike

Biggest Single-Day Put Buying Sprees

The table below lists the biggest single-day BTO put/call ratios for all equities over the past 10 years. Last Friday ranks fourth. Overall, the summarized returns show underperformance in the short-term (out to a month), then slight outperformance over the longer term (3-6 months). The returns are mixed. For example, look at the two instances in 2022. After the first time in August, the S&P 500 was down over 8% over the next month. The next occurrence was in December and the index gained over 6% over the next month. Just like last Friday, the S&P 500 was down between 1% and 2% on those days in 2022.

PC Ratio Spike

BTO Data by Sector and Stock

The tables below break down the BTO volume from last Friday by sector and stocks. This will give us a sense of what the put buyers were targeting on that day. The first table shows the top 20 sectors by BTO volume for last Friday. Bolded sectors have more puts than calls bought to open. There was huge put buying in mortgage and real estate investment trusts and also in investment banks and finance companies as investors feared contagion from the news about Silicon Valley Bank.

Sectors Put Traders

Finally, I looked at the top 50 stocks by BTO volume last Friday. The stocks below are the ones that had a put/call ratio above one. These were the stocks most targeted in last Friday’s put buying spree.

Stocks Put Traders

 

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