One of the largest trades today in the options pits was an apparent bearish bet (or a defensive hedge) in the XME, the S&P Metals & Mining etf. When the etf was $22.85 a trader bought 50,000 of the September 20 / 15 put spread paying $1.12 to open, or spending $5.6 million in premium. This trade breaks-even at $18.88 on the downside, or down about 17.5% from the trading level, and offers gains of up to $3.88 between $18.88 and $15, with a max gain below, or $19.4 million.
In case you missed it, the XME has rallied 100% from its January lows, and is down about 10% since bumping up against technical resistance at the mid 2015 breakdown level of $25:
Taking a longer term view, remember the all out crash that took place in the XME during the global financial crisis, and maybe more importantly the quick reflation of the commodity rally off of very depressed levels:
So the fiscal stimulus in China back in 2009/10 got the commodity party started again, but it didn’t take long for the pressures of rising debt levels from hundreds of billions of dollars of mal-investment to take its toll on the global economy. The downtrend from 2011 in the XME has been pronounced, and while it was underway when the dollar was still very weak, it accelerated at the end of QE in the U.S. This most recent bounce again seems related to hope that China’s economy is having a soft landing, and obviously the dollar’s weakness. I suspect the recent failure below the downtrend could cause the XME to become a teenager again in 2016.