Block Trade Analysis – Bearish SPX Trade in Front of Employment Report

Tomorrow we get the first look at how the economy fared in January.  This insight comes with the release of the January Non-Farm Payrolls number.  I went searching for a trade or two executed late Thursday that may indicate a bullish or bearish market outlook in front of the number.

I didn’t have to look too much to find an interesting trade..  Just before the SPX option market closed at 3:15 pm Chicago time there was a buyer of about 500 SPX Feb 26th 1920 Puts at 41.70.  Note the payoff diagram below that shows a break-even level a little less than 2% lower than Thursday’s close.  In addition, I decided to highlight the S&P 500 closing low of 1859.33 for this year as well.  My thinking is that the trader behind this trade is speculating on new lows for the S&P 500 between now and February 26th or they are hedging a portfolio just in case.  Either way the employment number should give a hint as to the potential outcome for this trade.