Billions in Put Options purchased betting that the market will crash (UPDATE: CALL MADE?)

I was wrong in one of my earlier posts about volume reseting daily(like it does daily on a stock or ETF). It looks like it doesn't so that volume is still there. So I've learned something new.

The spx.x options chain tracks the index while the other tracks the SPY etf. They're basically tracking the same thing except it'll take 10 times the money to buy an option on the spx.x as it would to buy one on the SPY. Oh, and in case you didn't know a single option represents 100 shares of the underlying asset. So you multiply the ask price by 100 and that's what it would cost to get a single option (on 100 shares) that's also why i use limit orders when i buy anything but that's another issue entirely). For example if i wanted to buy a call (expecting market to go up) on the SPY at the $150 strike i'd pay $165 per call + transaction costs (usually about $11 +$.75 per contract). If i wanted to buy a call option on the spx.x at the same 1,500 level it would cost $1,530 per option plus transaction costs.It can be said that 10 SPY options = 1 spx.x option and ther would be 1000 SPY stock as the underlying asset. That last two sentences may be confusing but i'm nearly certain i'm right there. If i wanted to sell those calls I would get the same amount credited to my account.

After typing that I realize mesh said basically the same thing. It interests me greatly. No one teaches this stuff. I will definately be using that site instead of yahoo from now on to track options that interest me, it's so much easier to see the two side by side. I've been leaning toward some type of trade with two sides since the beginning, I guess now the question is who is so hard up they did this to raise cash.

There still seems to be a huge amount of short interest on the S&P though, after what the fed did last expiration day i'd be scared of shorting too hard.

Um... Just when I thought I was done with this I went back to tickerforums, and lo and behold on the last page there is someone claiming that a similar bet against the Nikkei (similar to the Eurostoxx put) has been placed the link is in Japanese so i can barely read it but it's a deep otm put against the Nikei as well.

$5.6 billions is frankly not that much at all. Have you people actually seen the volumes by value that trade on the CBOT every day ? If they were really SO Bearish why dont they put their money where their mouth is and go short on futures ??? There has not been any significant short additions that would warrant a "Red Flag" at this moment. When people see short build up with massive OI then you'll know when we have a falling dagger!!

Hell right now, I'd write all the puts I can (margin willing!) and drain those suckers of all their cash as the premium rises. It might even be a great to go for some nice Bull Put spreads here just to be safe. I would definitely go for that if I wasnt already invested!




[edit on 27-8-2007 by IAF101]

I ran in something that might be useful to this discussion. Please have a look and tell me what you think.

well, the markets have taken another dive

Europe is down between 2-3%

US is down over 1% and falling

DOW is heading below the 13,000 mark again.

Market turmoil knocks UK business

news.bbc.co.uk...

The same has happened in Germany and in the United States too.

Many UK banks are refusing to show their debt and how badly it will hurt it's profit.

This article suggests that these put options mean for optimism heading into September.

While I wholly admit that when I read these articles it looks like Swahili to me, I was hoping one of our more experienced financial peeps could check this article out.


Optimism is Back: Finally

The put options open interest for the September series contracts is increasing at 4,200 levels (6.69 lakh shares). It is widely believed that derivatives players are typically wrong on the market and thus use contra-market indicators. In other words, the overwhelmingly buying calls are bearish while the put volumes at extreme levels are bullish.

something major will happen before Christmas, and September will always be a hot favourite.

I'm just expecting day after day of predictions involving every day in September from now on.

whats the cheapest option I could buy for the spy or what is the cheapest way I could get into this financial opportunity without doing something on credit or loans. I mean, I would like to do something with cash only. I hold a few positions right now, one in china, one in the usa. The usa one has already tanked, china is up. But besides them, I'd like to get in on this falling market scare, I believe in it.

We're all assuming these Put options have been made because the betters expect something major to happen that will crash the markets.

Short of a terrorist attack, or UFO invasion (as some have alluded) or even the commencement of bombings on Iran (which is where I feel the most likely scenario may play out), there's one possibility that most of us have overlooked:

What if the Federal Reserve doesn't cut the interest rate on Sept. 18. It's widely known that investors are trading today on the expectation that Bernanke will cut the rate by 50 basis points (so, from 5.25 to 4.75%). But I've long speculated that the Fed is on a tightrope here with this. If it cuts rates, it could further destabilize and devalue the dollar, which can then lead to a currency crash worldwide as countries like China and Russia and Europe and even Saudi Arabia and Iran dump their dollars after losing faith in its long-term value.

That could lead to hyperinflation and a real doomsday scenario for the economy.

I think there's a real chance that the Fed is weighing the possibility of holding rates steady instead of a cut under the belief that the pain in a stock market crash would be less than the pain in a dumping of the U.S. dollar.

Maybe that's what the buyers of these Put options know that we don't....

Xenya, shouldn't be that hard to do. If you already have a trading account you'd probably have to apply for options trading. I'd recommend staying away from setting up a "margin" account, but that's just my own preference. I use a service called sharebuilder, I have what's called Level 2 options trading meaning I can buy and sell calls and puts (I'd thought I could only buy calls but once again I was wrong i can buy/sell calls, write calls and "unwind" not 100% sure what that is but i can do it.) Price per options trade is $10.95 +$.75 per contract on premium and in the $15 +$1 per contract on the standard plan. As far as how much each option contract costs find the SPY on yahoo look at the ask price under puts multiply that by 100 and that is the per contract price on the option. I recomend using a limit order so you can maybe get a better price than the ask price during the day. (when you use a market order it's usually gonna go at the ask price.) For example a single put option at 120 strike on the spy (would be S&P hitting 1,200) would cost me around $33 bucks. If the S&P doesn't hit 1,200 it's worthless after the 21st. But if the market starts to tank you could sell it for a gain before then, just make sure it's still a gain after you take into account your transaction costs. Make sure this is money you can afford to lose before you place that bet!!!! I'm thinking about it myself but I think i'm gonna wait until an up day to buy my first put.

Behindthescenes, I think that is a pretty good theory as well. The fed may be in a catch 22 on rate cuts where it's better to do nothing than something. If they cut the dollar could crash if they raise the market will crash (not to mention even more foreclosures in next 6 months). If they do nothing the market will fall but i doubt by 30%.

So if i get this option, SZCUR.X, and the ask is at .05 right now....it would cost me 5 dollars for the option plus commissions? What is the strike price for? Also, why do some options cost more than others considering the ones I am referring to are all for the spy?

I feel like a market noob, but I never had interest in options until I read some about them and saw the great leverage your money has with a small investment, especially in this specific situation. Thanks for your information too.

No cut...no raise...the market might interpret as hawkish and react down. A lot depends on Ben's words. The Fed has been marking time on rate adjustments, while relying on a convoluted mix of rhetoric to guide the economy...the jawboning is beginning to wear thin on the Street.

Good time to check online brokers mortgage and derivatives exposure ie..Etrade. I have a reasonably safe broker, but I recently trimmed-down my available cash just to be prudent. In the event of insolvency, cash could go up in smoke. Stocks on account could be tied-up for months while buy-outs, mergers, and bankruptcies finalize.

[edit on 28-8-2007 by OBE1]

DOW has dropped over 2%..

NASDAQ and S&P 500 are nearly 3% down

The August 7th FOMC minutes with George Ure's brief comments:

Want my opinion? The Fed is not being clear enough. The market doesn't like equivocation and there's a little something in the statement for everyone. That makes me nervous as hell. I expect most investors will feel the same way...but we'll see how the close looks today. 1987 or 1929, anyone?

George has overlaid the current DJIA chart with value adjusted charts from the crash years of 1987 & 1929. The correlations are remarkable...especially 1987.

Bloomberg doesn't expect the Feds to cut rates. Inflation is still high and the Fed wants to keep inflation low so don't expect a cut.

The market isn't going to like that.

reply to post by Peyre


ha. good time to buy stuff, I guess!

This is interesting. I thought I saw a statistic somewhere that said that 3/10 houses somewhere in California were foreclosing.

Someone with an online trading system looked into this for me, and told me the put orders were called already, and the profit was made, but the story hasn't been updated. Can anyone confirm ?

Originally posted by syrinx high priest
Can anyone confirm ?

I'm seeing that in other financial discussions as well. The drama might be over.

lets see if the call was made and remember these options were placed in many different indexe's so were they all called? i don't think so


stocks tumbled 280 today and Japan opened wednesday taking a pounding as stock slid and the yen strengthened.

good thing the subprime junk was our biggest export last year