SPY Unusual Option Activity Report
The market has had a good week and tested the upper end of this weeks expected move. The big move came following Pfizer’s vaccine news on Monday. Since that time, the price has stagnated and may look to retrace. Entering next week. As the price flounders near extremes, unusual option activity and a large sell order on the SPDR® S&P 500® ETF Trust (SPY) today.
SPY Stock Activity
Early in the trading session a large sell trade came through on the SPY. A 1,010,000 share sell order was filled in one print at $356. It reflects a level of agreement at that price, beyond the sell implications. That makes that level significant in the near future.
To gain a little perspective, a print of 500,000 shares or more on the SPY is typically an important threshold for this type of activity. While it doesn’t carry strong sell-side indications, it creates a price level that will be important. You’ll notice that the price closed slightly below that level and traded near it for a good portion of the day.
SPY Option Activity
The SPY option activity wasn’t exactly blowout today. The call option volume was nearly 25% below average and the put option volume was only 5% above average. However, a large vertical trade was made today that filled in several tranches.
The option time and sales shows several large trades made at the same time. These trades dominated the highest volume trades on the session.
Here is a breakdown of the activity:
- Buy 18 DEC 20 $300 put
- Sell 18 DEC 20 $290 put
This is a bearish position that expects the price of the SPY to reach $290 in 37 days. To be fair, it’s likely a hedge. However, it is a reflection of the expectations of movement in SPY by the December expiration.
The delta for the $290 put is 0.04, which indicates only a 4% probability of that outcome occurring and the trade reaching $290 or less. This type of trade would be similar to the VIX Volatility Spread (VVS) trade that I posted on last week.
SPY Chart
How would it be to know how much the market is expecting the SPY or another optionable stock to move? We have a proprietary indicator that does just that. It’s called the Expected Move Indicator and is given to all of our TheoTrade subscribers along with every other indicator used by our instructors.
The range is determined by option implied volatility and is set based on the previous Friday’s close. For the SPY, the range of the expected move set with last Friday’s close is $342.12 to $358.20. You’ll notice that the price briefly traded above the expected move on Monday before falling back and is trading near that level today.
Conclusion
These trades in the SPY paint a picture of the resistance that the SPY faces near its September 2 high. As we close the week, it will be difficult to find much traction above the high of the expected move without a catalyst. What this type of trades should provide is an indication to hedge some downside risk at this level or increase cash levels.
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