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It was reported late Wednesday that a giant options transaction may have kicked off the S&P 500’s jump after it fell early in the session.
Bloomberg said that Wells Fargo’s Head of Equity Strategy, Chris Harvey, revealed the trade involved buying and selling call options linked to the index at the cost of around $31 million. According to Harvey, it probably helped fuel recovery, with the S&P 500 erasing a 1.8% decline.
The trade was said to have seen the buying of 20,000 S&P 500 calls expiring in October with a strike price of 4,500, 14,000 bullish contracts expiring in March with a strike of 4,300, and the selling of 48,000 calls maturing in January with an exercise price at 4,500. The trade was essentially a bet that stocks would gain in the coming months.
Bloomberg added that the view is that a market maker on the other side of an options trade will have to buy or sell stocks to balance positioning. In addition, they said depending on the exposure, the dealer may exercise inflated influence on the market due to the fact they had a huge amount of risk to offset.
Harvey reportedly told investors in a note that the Greeks of the options trade probably resulted in the mid-day pop in the S&P 500.
However, other analysts do not see the trade as the obvious reason for the S&P 500’s gain.
