The 6-Figure Bet on SPY Record Highs

Despite a recent bearish bias in the options pits, one options trader is betting on record highs for the SPDR S&P 500 ETF (SPY)

by Josh Selway

Published on Jun 1, 2016 at 3:05 PM
Updated on Jun 24, 2020 at 10:16 AM

Bearish options traders have been targeting the SPDR S&P 500 ETF (SPY) over the past couple weeks. For instance, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows that the exchange-traded fund's (ETF) 10-day put/call volume ratio sits at 1.96, putting it in the 84th percentile of its annual range. Said simply, put buying has been more popular than normal lately on SPY.  However, one trader today is betting on record highs for the SPY in the near term.

The SPY's single-day put/call volume ratio spiked to 2.40 on Tuesday, per Trade-Alert, which is the highest of the year. Schaeffer's Quantitative Analyst Chris Prybal dug deeper into the data and found that when you narrow Tuesday's put/call volume ratio to just options that expire within the next three months (our definition of "near term"), this ratio jumps to 2.73 -- the highest since Aug. 24. So, obviously, options traders have been either aggressively hedging their long SPY positions, or they're betting on the broader stock market to struggle in the near term. 

To get more specific, the July 204 put was one of the most popular contracts over the past two weeks, judging by open interest added. Data from the major options exchanges confirms traders have been buying to open the option, meaning they're expecting SPY to fall below $204 over the next two months, as the contracts expire at the close on Friday, July 15. Perhaps they're betting on a negative stock market reaction to the June Fed meeting or the June 23 "Brexit" referendum?

However, this bearish bias has died down some in today's trading, as SPY's single-day put/call volume ratio of 1.45 sits in just the 28th annual percentile. Moreover, as alluded to earlier, one trader placed what Fred Ruffy at Trade-Alert referred to as an "ambitious short-term play" on SPY.

Specifically, one speculator bought to open 50,000 weekly 6/10 215-strike calls for 6 cents each, resulting in an initial cash outlay of $300,000 (price paid per contract * 100 shares per contract * number of contracts purchased). This trader is hoping SPY tops $215 -- a 2.4% climb from current levels, and into record-high territory -- before the contracts' expiration date of June 10. Clearly, this is an ambitious wager, especially considering the potential layer of near-term resistance sitting atop SPDR S&P 500 ETF's (SPY) current price of $209.93. 

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