It's been a horrendous few weeks for stocks, with the S&P 500 slipping 7 percent from its mid-September highs. But one options trader appears to view this as the perfect time to take off protection, perhaps due to a prediction that the market has already found its bottom.
As the market sank on Monday, one trader appeared to express a view that the selling was over by closing out a bearish position on the SPDR S&P 500 ETF (which trades under the ticker symbol SPY). Specifically, in one of the day's biggest options trades, a trader sold 50,000 November 185/180 1-by-2 SPY put spreads for $1 each, collecting $5 million in premium.
A put gives a trader the right to sell a stock at a given price and time, and a put spread is a way to mitigate the cost of buying one of these bearish options. This trade thus provided downside protection on the SPY ETF, which is a proxy for stocks as a whole. But because the trader is closing this trade rather than opening it, the trader appears to believe that it won't get much worse for the market in the month ahead.