Broader benchmarks for the U.S. stock market have been hitting fresh highs recently, helped in part by the outperformance of social media related stocks. Options activity on the SOCL today suggests at least one trader is picking up some downside protection on the sector in the event the rally in equities hits a speed bump during the next few months.
The ETF popped up on our ‘hot by options volume’ market scanner this morning after a sizable block of out of the money put options changed hands. It looks like one strategist purchased 2,000 of the Jun $20 strike put options for a premium of $0.40 each, and suggests the trader is bracing for shares in the SOCL to potentially tumble roughly 13% during the next few months. The put buyer could be using these contracts as a relatively inexpensive way to hedge positions in the underlying holdings of the fund, or to protect a long position in the fund itself. For example, buying put options on Facebook that protect against a 13% dip in shares of that company would cost roughly $3.30 each (for the Jun $62.5 strike put options) while puts on LinkedIn looking for a 13% dip in those shares by May expiration (June series not currently available) tout an asking premium of $7.15 each as of 12:25 p.m. EST.
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