> And it wasn’t just options. At exactly 1:01 pm EST, trading volume in SPY shares themselves spiked. Nearly 2.75 million shares were bought in that single minute.
This is standard practice, it was simply the marketmaker hedging its position after just having sold those $2.5 million call options.
The math checks out; at 85 cent per piece, those were 2.94 million call options. At 9 above the spot the delta was less than one so I guess you'd need to buy slightly above 2 million shares to hedge your delta. The normal SPY trades would have made up for the remainder of the 2.75 million volume.
Yeah this whole article is meant to stir outrage - HN is taking the bait, but that's expected. The most proficient people in the world at logic, and they are still culpable to biases. My comment shouldn't be confused though - there is smoke, but none of this is really proof because there isn't enough evidence yet from our perspective.
A lot more details needed:
- Is it a fund or individual?
- Does the trader make these kind of trades regularly?
I have more questions, but those are the first questions I would start with. I trade 0 and 1 days quite a bit in SPY and have collected a lot of data and performed statistical analysis on them for several years now. I myself sold S&P futures options that morning based off my data.
My theory until proven otherwise - Trader makes smaller trades in 0 days regularly - market volatility and the state of that week gave a much higher probability that there would be an extreme reversal at the first sign of any hint of good news, which was proven by fake news of a tariff lift just a day or two before. The overall bearish sentiment also coiled the market for an extreme move to the upside. Adding even more probability, the market that day was at the same level from Monday, where it showed buyers were foaming at the mouth to buy. Trump tweets just after market open that it was a great time to buy. Probability increases even more...
Similar to a very high probability count in Blackjack, trader puts in a trade at 12 and has an exit plan for 1 or two hours later. Trader determines that worst case 50 to 75% of the trade is lost due to theta decay by 2pm. Maybe they have a stop at 40%? Best case 2 to 10x's their money due to support levels giving a small rally. They've done this before and the wins outweigh the losses. Maybe even a hedge fund or algo trader running an ML model.
In my data I've seen extremely large multi-million dollar call option plays regularly when there is market volatility like this. Until proven otherwise, everyone just needs to stop with the outrage. I'm completely willing to change my mind as more evidence comes out.
This is standard practice, it was simply the marketmaker hedging its position after just having sold those $2.5 million call options.
The math checks out; at 85 cent per piece, those were 2.94 million call options. At 9 above the spot the delta was less than one so I guess you'd need to buy slightly above 2 million shares to hedge your delta. The normal SPY trades would have made up for the remainder of the 2.75 million volume.