Implied volatility is falling and some players in the options market are taking advantage of the cheaper premiums to buy portfolio protection. Spyders (SPY) July 90 put is the most actively traded options contract Thursday, with more than 152,000 contracts traded. In addition, about 61 percent of the volume has traded ask-side of the bid-ask spread and ISEE sentiment data, which tracks the percentage of trades that are customer buy orders, indicate that brokerage customers bought-to-open 123,000 puts on the Spyders today.
Like the VIX, which is set to close near 27 for the first time since September 2008, implied volatility in SPY options is trending lower as well. (Since VIX tracks the expected volatility of S&P 500 index options and the SPY is designed to mimic the performance of the index, implied volatility of SPY options will mirror the VIX). Now, some investors are taking advantage of the recent decline in implied volatility (options premiums) to buy portfolio protection in the form of SPY puts.
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Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.