Even as equity markets look to rebound from Monday's disaster, a major trade in the options market shows that investors are starting to prepare for the potential of a second-half bloodbath.
Since each options contract is worth 100 shares of the index, the total premium involved in putting this trade comes out to $5,017,500.
That trade breaks even down at 2,487.70 on the S&P, which would represent a decline of about 13% from Monday's close, or nearly 30 points below where the index closed 2018. It's not every day that a trader puts on a hedge this big against such a direct proxy for the broader equities market, but the move in the index wouldn't be unprecedented. Just last year, between the S&P 500's highest close and the Christmas Eve lows, the index plunged 20%. As an investor with a large portfolio, this trader decided not to get burned again.
"To put some perspective on the size of this trade," said Khouw, "that would be a hedge against a portfolio of about $560 million."
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