A Rare Options Trade on This Big-Cap ETF

One trader may have initiated an options hedge against a short-term decline in global stocks

Sep 8, 2017 at 11:24 AM
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In contrast to its main holdings, the iShares MSCI ACWI ETF (ACWI) isn't known for it's elevated options activity. The exchange-traded fund (ETF) tracks the performance of big-cap global shares, with FAANG stocks Apple and Amazon among its largest holdings. At Wednesday's close, 32,367 calls and 34,248 puts are currently open -- in the middle 43rd annual percentile.

Yesterday, however, 16,606 puts traded on ACWI -- 66 times the average daily volume of 252 contracts. As a point of comparison, just one call crossed the tape. Nearly all of the day's volume was due to a 16,590-contract block of January 2018 60-strike puts that was likely bought to open for $1.1 million (number of contracts * $0.67 premium paid * 100 shares per contract).

This initial cash outlay represents the most the put buyer stands to lose, should ACWI be trading north of $60 at the close on Friday, Jan. 19, when the options expire. Profit, meanwhile, will accumulate on a move below breakeven at $59.33 (strike less net debit).

Looking at the charts, the last time the ETF traded below $60 was on Jan. 4, and has since surged more than 13%. In fact, ACWI hit a record high of $67.81 earlier today, last seen trading at $67.75. As such, it's possible yesterday's massive put buy is a result of a trader initiating an options hedge against a long stock or portfolio position in case of a year-end decline in global stocks.

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