When the S&P and Dow knocked up against long term downtrend resistance I thought there was a decent chance of a sell off so I started watching put action in detail. If $SPY corrected at a minor downtrend resistance level in July, 2009 why wouldn't it at the ultimate 3 year downtrend? With the volatility index ($VIX) making new lows (16) and traders chasing market upside on breakouts it was hard to pinpoint the exact top. I'm sure that's why traders were buying, on a net credit basis, out of the money VIX options in November expiring in December. The VIX futures curve was also steep. The market broke out yet again during the Santa Clause rally. In the beginning of January the Transports, Industrials, Russell 2000 and S&P 500 Indexes all ran out of breath right at downtrend resistance. During this time I saw interesting option trades. For example, $SRS (Inverse Real Estate ETF) April calls, IWM (Russell ETF) February puts (with a put/call ratio spike), IYT (Transports ETF) February puts (extremely low put/call ratio but rising short interest) and UUP (US Dollar ETF) June calls were active. In December, SLV (Silver ETF) February puts, SPY (S&P ETF) puts, IWM puts and UUP calls were active at higher premiums. Traders in January timed their speculative or protective positions perfectly using cheap volatility. Protective meaning hedging a long portfolio of ETFs which was, in this case, a decent kicker. The FEB puts expire in two weeks (2/19).
January 2010 Action: (Expirations 2010 except one Jan 2011):
1/5/2010: SRS APR 7 call $1.36 to $1.69 (+24%)
1/6/2010: IWM FEB 60 put $0.92 to $1.63 (+77%)
1/12/2010: UUP JUNE 23 call $0.58 to $0.90 (+55%)
1/13/2010: IYT FEB 75 put $2.10 to $6.10 (+190%)
December 2009 Action:
12/30/09: SLV FEB 15 put $0.23 to $0.46 (+100%)
12/30/09: SLV APR 15 put $0.53 to $0.96 (+81%)
12/15/09: UUP JAN 2011 24 call $1.00 to $0.96 (-4%)
12/14/09: UUP March 23 call $0.55 to $0.66 (+20%)
12/11/09: IWM, SPY Put Positioning (noted volume on ISE)
12/11/09: SPY Exotic Way Out Of Money Dec 55 put $0.60 to $0.43 (-28%)
12/2/09: SPY MAR 110 put $5.20 to $5.46 (+5%)
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