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Thursday, March 30, 2023


Big SPY Put Spread Established As Market Awaits Jackson Hole Gathering


Today’s tickers: SPY, MCP & JNPR

SPY – SPDR S&P 500 ETF – A massive bearish spread initiated in the final hours of the trading session on Monday afternoon suggests one big options market participant is prepared for a roughly 8% pullback in the S&P 500 Index during the next few months. Shares in the SPY, an exchange-traded fund that tracks the performance of the S&P 500 Index, slipped to an intraday low of $140.97 earlier today after consumer confidence fell the most in 10 months, but have since recovered to stand 0.10% lower on the session at $141.40 as of 11:30 a.m. ET. The large, approximately, 100,000-lot Nov. $130/$140 put spread purchased Monday for around $2.47 per contract makes money if the price of the underlying slips 2.7% to breach the average breakeven point on the downside at $137.53. Maximum potential profits of $7.53 per contract are available on the position in the event SPY shares drop 8% to settle at or below $130.00 at November expiration. The strategy could be looking ahead to the meeting of central bankers in Jackson Hole, Wyoming; betting the markets may be disappointed in what Bernanke and others have to say as the U.S. settles in for the long weekend. Additionally, with the S&P 500 Index having traded up to its highest in four years on an intraday basis last week, the spread may simply be locking in recent gains to protect against any bumps in the road, central bank-related or otherwise, that could trip up the market in the next few months.

MCP – Molycorp, Inc. – Shares in Molycorp are up 11.5% today at $10.61 after the rare earth metals mining company announced Monday it began operations at its Mountain Pass mine in California. Weekly call options on Molycorp are seeing the most volume in the first half of the trading session, with the Aug. 31 ’12 $10 and $11 strike calls changing hands more than 6,000 and 5,000 times, respectively. Open interest in the $10 call, now at 2,687 contracts, increased by 1,445 lots yesterday. Premium on these calls increased five-fold since the prior session, rising from a volume-weighted average price of $0.12 apiece on Monday, up to the current bid/ask of $0.61/$0.67 as of 12:40 p.m. ET. Cheap, short-term upside calls traded around 400 times up at the Aug. 31 ’12 $12 strike this morning, as well. It looks like traders paid around $0.02 per contract for the $12 calls, which may pay off at expiration should Molycorp’s shares rally another 13% to exceed the breakeven price of $12.02. Overall options volume on the name is approaching 28,000 contracts, with roughly 3.5 calls changing hands on the stock for each single put option in play, as shares continue to push higher this afternoon.

JNPR – Juniper Networks, Inc. – Call activity on Juniper Networks this morning suggests at least one options trader is positioning for the price of the networking equipment and services provider to rally into October expiration. Shares in JNPR are up 3.1% this afternoon at $18.30 as of 12:15 p.m. ET. The stock started to slide in February, falling more than 40% from a 2012 high of $25.04 down to a 52-week low of $14.01 on the 17th of July. Juniper’s fortunes started to change in recent weeks, with the stock up better than 30% off the July low. Upside calls looking for shares in Juniper Networks to extend gains in the near term are most active at the Oct. $19 strike today, with around 5,000 contracts in play versus open interest of 2,296 positions. It looks like most of the $19 calls were purchased for an average premium of $0.66 apiece early in the trading session, positioning buyers to make money in the event JNPR shares climb 7% to top $19.66 by October expiration.


Caitlin Duffy

Equity Options Analyst

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