Trader spent $ 50 million on options bets on the S&P 500 rally


(Bloomberg) – A trader has just made a massive bet that US stocks will recover until the end of 2021.

The wave of trading with the SPDR S&P 500 ETF Trust (SPY) – which took place between 10:34 a.m. and 10:41 a.m. New York time – involved call spreads maturing in each of the following three months. . The total cost was around $ 50 million. If all contracts were in the money by their respective expiration dates, they would be worth $ 136 million – for a profit of about 70%, according to an estimate from Chris Murphy, co-head of derivatives strategy at Susquehanna.

“These trades all share a very similar footprint,” Murphy said. “It could be someone who’s underweight equities and says, ‘If this thing explodes higher by the end of the year, then I’m going to be in trouble. So why wouldn’t I put some of these call spreads just to cover myself? This is a situation. Or it could be someone who is bullish becoming more bullish.

The transactions took place just before the Federal Reserve’s policy decision. The S&P 500 climbed around 1% on Wednesday, posting a four-day drop, as concerns about the China Evergrande group’s debt problems eased. Down 2.8% in September, the index is heading for its worst month in a year.

It “sounds like someone putting money in to work to play for a rally late in the year after the recent sell-off,” said Danny Kirsch, head of options at Cornerstone Macro LLC. “Interestingly, they’re doing it in front of the Fed meeting as well, maybe I think the outcome will be positive for the market.”

Here are the details of trades using bullish options on SPY, which closed at $ 437.86 on Wednesday:

  • 25,000 call spreads Dec. 448/470 for $ 7.91

  • 32,000 Nov 448/460 call spreads for $ 4.35

  • 43,000 October 442/452 call spreads for $ 3.89

(Update the prices in the fourth paragraph and add the price in the sixth.)

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