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Large investor lays out $31 million options hedge against U.S. stock market drop

Stock Markets Dec 02, 2019 04:06PM ET
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By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Monday's slide in U.S. stocks prompted at least one large investors to load up big on stock options that would guard against a sharper hit to stocks into the start of next year.

Shortly after the market opened on Monday, an investor paid about $31 million to buy 16,000 of January put options at the 2,980 level on the S&P 500 Index (SPX), according data from options analytics firm Trade Alert.

The position struck about 4.6% below the market's current level around 3,124 appears to be hedging roughly $4.8 billion in assets, said Henry Schwartz, president of Trade Alert in New York.

An index put option gives the holder the right to sell the value of an underlying index at a fixed level in the future, thereby offering protection against a slide in the market.

U.S. stocks fell on Monday after President Donald Trump decided to restore tariffs on metal imports from Brazil and Argentina and weak factory activity fanned worries of a slowing domestic economy due to the long-drawn trade war with China.

The S&P 500 (SPX) was 0.53% lower at 3,124.45 in afternoon trading.

"The trade may be a year-end hedge following last week's all-time highs above $3154," Schwartz said.

On Monday, the CBOE Volatility Index (VIX), a widely followed options-based barometer of expected near-term volatility for stocks, rose to a near 6-week high of 15.27 before paring gains to trade up 1.34 points at 13.96.

Large investor lays out $31 million options hedge against U.S. stock market drop
 

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Comments (5)
Adam Anderson
Adam Anderson Dec 03, 2019 10:36AM ET
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Funny 31million put buying and now the trade deal got to wait till 2020...hmm interesting very interesting.
TA XVCI
TA XVCI Dec 02, 2019 5:35PM ET
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First Dalio, now the rest are joining. The drop is healthy and a correction shall happen after all this hopium.
greg mason
greg mason Dec 02, 2019 5:28PM ET
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Donald Trump says Hong Kong law he just signed could complicate any trade deal with China. ‘It doesn’t make it better,’ he acknowledges when asked if the Hong Kong democracy law would make a prospective agreement with Beijing harder. President avoids saying whether a phase-one deal would happen before year’s end, while new round of tariffs on December 15 loom
Justin Ferguson
Justin Ferguson Dec 02, 2019 5:07PM ET
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It will be the usual trade war antics
Shpend Salihu
Shpend Salihu Dec 02, 2019 4:22PM ET
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Something is going to trigger a massive selloff very soon and it might be a great opportunity:)
greg mason
greg mason Dec 02, 2019 4:22PM ET
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Totally Agree
 
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