Someone Is Betting On A Crash?
The Market Ticker ® - Commentary on The Capital Markets
Posted 2013-02-08 10:48
by Karl Denninger
in Market Musings
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Someone Is Betting On A Crash?
 

Hmmm...

That, if you're unaware of what you're looking at, is the option chain for the "XLF", the financial sector "spyder" ETF, for April expiry.

The April $16 and $17 PUTs have enormous open interest.  The $16s have been there for quite a while.

The $17s, however, have not.

At first blush you'd look at this and think it was a spread, which is not all that unusual.  But then you look more-closely and on 1/24 you find that 50,000 $17 PUTs were opened against 44,000 open interest (approximately) and that was all the material movement through the end of the month.

Then, on the first of February, an obvious spread appears to have traded for 25,000 contracts.

And then the big daddy appeared -- a monster set of trades on the 5th -- and both "stuck" the next day.

That is, these were not daytrades.  They're positional.  And they're still there.

Assuming this was a "spread", the person executing it spent about 20 cents.  Since each option is 100 shares this is $20.00 times 100,000 (approximately), or $2 million.

On a 10% decline they will net 5x their bet, or $10 million.

If the decline is larger they get nothing more, as the short PUT sold against the long (assuming it's a spread) caps their profit.  But that's a hell of a lot of money to slap on the table -- unless you know something.

We'll see if the person who placed the trade indeed does.

Discussion below (registration required to post)
 

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User Info Someone Is Betting On A Crash? in forum [Market-Ticker]
Digitlman
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I know I am.
Deckchairs
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The Slightly lessDemocrat -IC People's Rebuplic of Las
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Ditto, but what suggests its a spread? Is it the exact same number of contracts? I am not well versed in these things.


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Genesis
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Yes; the correlation suggests that someone bought the $17s and financed them by selling the $16s against it.

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I don't care if it makes sense -- only if it makes money. -- Me
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Deckchairs
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The Slightly lessDemocrat -IC People's Rebuplic of Las
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Karl's right the return matrix for this particular spread suggests inside information. Did the Fed announce they were targeting a specific DOW instead of interest rates yesterday while I was following the rogue former LAPD officer?

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If I could just get my tax attorney to be my girlfriend life would be all right.
Randy123
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They will lose. Generational buy right now.

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it is ben he is worried about zn and zb and his portfolio blowing up

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It was me. lol

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Britishsteel
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gap fill on monthly chart and strong support at 16.50 area thats all, 18.17 0.382 retrace from 2007 top .

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Dvdman
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Excuse my ignorance but I trade futures. If I wanted to take a shot hoping this will amount to something would this be related to the Dow,SP,interest rate,or it looks like it trades in the Nasdaq. Also, would this really cause much of a move in futures market? Thanks...
Genesis
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Uh, yeah, it would.

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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?
Uwe
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Quote:
Generational buy right now.

smiley

-Uwe-

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Antone
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Whoever sold the puts is probably going to walk away with a nice gain.

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As if anything has changed:

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Mannfm11
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Probably not

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Andrew123
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if the government is successfull in damaging the ratings agencies, won't that hurt the ibanks business model by making it more difficult to sell fraudulent products?
Mdm
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Pretty logical bet if you assume that the March sequester actually happens.
Bullish_bear
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How can you determine if it is a credit or a debit spread?


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Genesis
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You can't be sure, but the risk:reward is all out of whack for a credit spread.

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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?
Dvdman
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I guess it would be difficult to predict a type of move in the SP futures (im guessing)If this person predicted a sell off correctly. What else could this sell off drag along with it. Would the SP futures sell off 30 handles 70 handles? What if this guys is long and hedging using these options? There seems to be too many factors.
Yayankee
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Is he expecting a sell off in one of the XLF components? And if so which one?
Maybe-not
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Another big bet on the vix to rise about the same time. http://www.businessinsider.com/art-cashi....
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"rut row reorge"

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CNBC just said it is just a protection trade from someone who has made a bomb on this run up, makes sense no?

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Genesis
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Pretty expensive protection trade.

What makes me think it's not a trade on a known all-on blowup is that it was financed with the short put sold against it. IF you expect an all-on crash you don't do that as you want ALL of the move, not just part of it.

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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?

Blurtman
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It's the Bernak!

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I have a reading comprehension problem and the owner banned me for repeatedly displaying it after being warned.
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