While the stock market celebrated record highs on Tuesday, significant positions in options trading are signaling substantial skepticism among some investors. Brent Kochuba of SpotGamma noted that hedging costs, specifically March options, have reached their lowest levels in 90 days, with volatility remaining comparatively low.
The Cboe Volatility Index (VIX) dipped below 15, making options generally cheaper. However, the largest trade in SPY shares was a put spread bet that profits if the S&P 500 falls by more than 18%. According to SpotGamma data, this substantial position was roughly four times larger than the next biggest trade, a net $11 million call spread. This occurred on a day when overall options volume exceeded the 30-day average by over 20%.
Concurrently, a major trade took place in Meta Platforms options despite the company’s stock rallying 20% over the past month, driven by surging downloads of its AI assistant, Muse. In the January 2029 expiration contract, which offers the longest duration for Meta options, an investor likely repurchased $89 million worth of 560-strike calls they had previously sold. Simultaneously, they opened a new position selling $69 million in 700-strike calls for the same expiry.
Although selling calls against existing holdings is a common strategy, utilizing in-the-money strikes with more than two years until expiration suggests a different motive. Kochuba admitted the trade was puzzling, speculating it might involve a volatility trader executing an arbitrage play.
Notably, the large SPY trade contradicted the broader sentiment in fund options. John Rowland, Barchart’s senior market strategist, explained via email that this discrepancy likely stems from bullish retail traders. In contrast, Barchart’s data indicated negative net sentiment for Meta options.
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