JNK Put Options Popular as Traders Take Junk Bonds to the Woodshed

Put option volume is surging on SPDR Barclays High Yield Bond ETF (JNK) as junk bonds fall victim to liquidity fears

by Elizabeth Harrow

Published on Dec 14, 2015 at 2:00 PM
Updated on Jun 24, 2020 at 10:16 AM

Junk bonds are getting hammered today, with liquidity fears surging after the sudden closure of a Third Avenue bond fund. As a result, bearish options on the SPDR Barclays High Yield Bond ETF (NYSEARCA:JNK) are attracting an unusual amount of attention, with traders appearing to bet on more losses for the exchange-traded fund.

So far, over 9,600 put options have traded on JNK -- a volume number that arrives in the 98th annual percentile, according to Trade-Alert, though it seems unlikely to surpass last Friday's 52-week high of 31,179 contracts. Meanwhile, fewer than 600 call options have crossed the tape on the ETF.

The most active JNK strike at last check is the March 31 put, where nearly 2,200 contracts have been exchanged. Some of these puts appear to have been bought to open, with speculators looking for JNK to fall below $31 over the next three months. To put that in perspective, JNK earlier today tagged a session low of $33.22 -- its lowest price since May 2009.

Meanwhile, 30-day at-the-money implied volatility on JNK has vaulted to 22%, which represents a new annual high. In other words, today's put buyers are paying a steeper-than-usual price to place their bearish bets on JNK.

As we head into the final hours of the session, the SPDR Barclays High Yield Bond ETF (NYSEARCA:JNK) is off more than 1% at $33.33. The fund has lost about 14% of its value year-to-date.

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