An investor paid about $5.3 million for a trade that will pay off if the iShares Russell 2000 ETF falls at least 2 percent by May.
The trader bought 40,000 bearish contracts on the small-cap stock ETF (IWM) expiring in May with a strike price of $113, while selling the same number of May $107 puts in a strategy known as a put spread, according to JonesTrading Institutional Services LLC. The trade cost $1.33 to put on for each contract.
“It might be a short-term hedge for fear of further market losses over the next five weeks,” Fred Ruffy, a Chicago-based senior options strategist at Trade Alert LLC, said in a note.
U.S. stocks slumped today, wiping out gains from earlier in the week, as investors resumed selling companies that had some of the biggest rallies last year. Facebook Inc., Yahoo! Inc. and Tesla Motors Inc. lost more than 4 percent as of 1:57 p.m. in New York.