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Defensive Trading Patterns Emerge Amid European Debt Crisis Concerns

Strategic Insights

— 1 min read

U.S. options traders shifted into protective mode on October 18, 2011, as concerns about Europe's sovereign debt crisis resurfaced. The defensive trading patterns were most evident in the Market Vectors Agribusiness ETF (MOO), which saw record options volume. Market observers attributed this to risk-averse traders reassessing their outlooks after a significant October rally in U.S. stocks. As one head of equity-derivatives trading at MKM Partners LLC noted, "Opening put buyers were overwhelming call trades." This indicated a shift towards bearish bets, particularly in the MOO, where activity tipped heavily in favor of put options.

Key Takeaways:

  • On October 18, 2011, U.S. options traders engaged in defensive trading patterns, driven by concerns about Europe's sovereign debt crisis.
  • The Market Vectors Agribusiness ETF (MOO) witnessed record options volume, with over 25,000 puts traded compared to just 484 call options.
  • Traders opening new positions in the MOO targeted contracts that expire in February and May, with some betting on significant share price declines of up to 27% over the next seven months.
  • Similar bearish trading was observed in the iShares MSCI Emerging Markets Index Fund (EEM), where traders sold over 90,000 December $40 call options and 10,000 October $40 calls.
  • In the SPDR S&P Oil & Gas Exploration and Production ETF (XOP) and the Materials Select Sector SPDR Fund (XLB), traders opened positions with protective options to cushion potential stock declines.
  • In the XOP, traders bought bundles of December $45 puts and March $40 puts, while in the XLB, traders opened positions in December $29 puts and March $26 puts.

Statistics:

  • Over 25,000 put options were traded in the MOO on October 18, 2011, compared to just 484 call options.
  • Traders targeted contracts that expire in February and May, with some betting on share price declines of up to 27% over the next seven months.
  • In the EEM, over 90,000 December $40 call options and 10,000 October $40 calls were sold.
  • The MOO rose $1.00, or 2.1%, to close at $48.20.
  • The iShares MSCI Emerging Markets Index Fund (EEM) rose $1.02, or 2.7%, to close at $39.27.

Sources:

  • (Dow Jones Commodities News Select via Comtex)
  • (Dow Jones Newswires)
  • Etai Friedman, head of equity-derivatives trading at MKM Partners LLC
  • Trade Alert LLC, a New York-based options data provider
  • Susquehanna Financial Group
  • Dow Jones Newswires, Chris Dieterich, 212-416-2611, christopher.dieterich@dowjones.com

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