Big Printin’ $GLD, $HYG, $XBI, $XLF, $XLI

by Dan February 9, 2016 3:52 pm • Commentary

To say that market participants are nervous at the moment is a bit of an understatement. Most investors probably can’t even remember the last time the S&P 500 (SPX) was down 9% and the Nasdaq Composite was down 14% on the year.  This weakness combined with the lack of commitment by the U.S. Fed has caused a constant flow of protection buying in the options market.  Today’s activity in the options pits was dominated by put buying. But interestingly, a lot of it was from traders rolling protection down as it neared the original strikes.

Here are a few examples of traders rolling or initiating downside hedges in sector etfs, and of course the shiny metal:

1. XLF – When the Financial Sector Select etf was $20.23, trading at its lowest levels since August 24th, a trader sold to close 25,000 June 21/18 put spreads at $1.12 and used some of the the proceeds to buy to open 25,000 of the April 19 puts for 63 cents.

April is an interesting choice of expiration for the roll as it will catch Q1 earnings from at least 30% of the etf’s largest components (BAC, C, JPM, WFC, USB).

2. HYG – The iShares High Yield etf tracks a part of the market that has caused a good bit of worry given its exposure to potential energy defaults and places with potential for contagion outside of the oil patch.  When the etf was $76.07, very near 7 year lows, a trader rolled a bearish (or defensive view) selling to close 30,000 Feb 75 puts at 47 cents, and buying to open 20,000 March 71 puts for 42 cents, and buying to open 10,000 of the March 72 puts for 57 cents.

3. XBI – Biotech stocks are some of the hardest hit from their 52 week highs, and the volatility in this sector has caused frequent rolling of hedges. Today when the etf was $45.91 a trader sold to close 15,000 of the March 45/55 put spreads and bought to open 20,000 of the March 35/45 put spreads, with the roll costing $2.85.

4. XLI – The industrial sector has been one of the hardest hit from its highs in early 2015, marking one of the most economically sensitive sectors to roll over first.  Today when the etf was $49.66, a trader bought to open 40,000 Sept 44 / 30 put spreads for $1.46 to open. This trade breaks-even below the 2 year lows!

5. GLD – They keep buying calls on the etf that tracks the price of gold as an inflation hedge, despite it being a fairly rare species any place on the planet.  Call volume today was more than 4x that of puts. When the etf was $114 there was a buyer of 25,000 May 118 calls for 2.85 to open, and a couple hours later closer to 1pm when the etf was $114.56 there was an opening buyer of 21,000 May 117 calls for $3.55.