Right out of the gate this morning it appears a trader made an outright bearish bet or possibly putting in place some near term portfolio protection in the S&P 500 etf (SPY).
When the SPY was $227.70 a trader paid $1.04 (~$2.3 million in premium) for 22,000 SPY dec 30th expiration 225 / 219 put spreads when SPY was $227.70, this trade breaks-even at $223.96, down about 1.6% from trading level, and offers max gain of $4.96, (~$11 million in premium) at $219, down about 4% from trading level.
This put spread appears to target the November breakout level to new highs just below $220:
Short dated options prices are very near the 52 week lows, with 30 day at the money implied volatility (blue below) just below 11%, just a tad above 30 day realized volatility (white below, how much the underlying is moving) and well below the 2016 average IV of about 15%:
It’s impossible to know if this put spread is an outright bearish bet or a hedge against other positions. If it is a hedge, it’s a fairly smart one in that it’s not overly aggressive on a downside target and protects back to the breakout level, effectively locking in the past month’s profits.