Surveying the market as the sellers took the Russell 2000 Index lower today, a large trade stood out.
There was a Vertical Put spread in RUT traded approximately 12,000 contracts with the trader buying the Nov. 13th 1020 Puts for 0.12 and selling the RUT Nov. 13th 1000 Puts at 0.04 for a net .08 debit. This was done in a few lots with the underlying Russell 2000 Index trading between 1180 – 1182.55.
Noting that the trader was buying the higher strike put and recognizing this position expires at the end of the week, a little detective work lead to the discovery of the same Vertical Put spread in RUT traded on Oct. 13th.
Back in October the trader opened up this position and sold approximately 12,000 contracts of the Nov. 13th 1020 Puts at 2.33 and bought the Nov. 13th 1000 Puts at 1.73 for a net credit of .60. The payout for this trade if held to this Friday’s AM settlement appears below.
When the trade was initiated there was over 11% of downside before the short 1020 strike put would be in the money. Odds are the trader behind this position noted that the bulk of the profit (.52) could be captured, and it made perfect sense to offset the risks going into expiration….giddy up onto the next trade.
Post Contributed by Rick Rosenthal, CBOE Business Development