Traders work on the floor of the New York Stock Exchange (NYSE) in New York City.
Spencer Pratt | Getty Images
While many traders focused on Treasuries following new Federal Reserve Chairman Kevin Warsh’s first meeting, it was another corner of the bond market that caught the attention of options traders.
of iShares iBoxx High Yield Corporate Bond ETF (HYG) Put volume rose on Thursday.
In one eyebrow-raising trade, an investor paid $1.3 million to buy 20,000 shares of a Jan. 27 75-strike put. The volume of puts was five times that of calls, with 190,000 of the 226,000 HYG options traded Thursday, according to Shinko Swim data.
The exact trigger for the bearish action is unclear, but some market participants have pointed to changes in the Fed’s structure as one reason.
“For the past 20 years, bond traders have been given a script to follow,” said Zed Francis, chief investment officer and co-founder of Chicago-based Convexitas. “They’ve just been told they have to do their homework again. That could lead to a buyer’s strike for a while.”
Another reason may be that oil prices continue to fall after the US and Iran reached a peace deal. Oil prices hit their lowest since March on Thursday. According to iShares, more than 11% of the HYG ETF is invested in the energy sector.
The most popular strike by volume on HYG is a 77-strike put expiring on August 21st, with 40,000 contracts traded on Thursday. At 39 cents per contract, or $39 per trade, buyers would need HYG to fall an additional 4% to break even.
