A Trader Spent $50 Million on Options Betting on S&P 500 Rally

(Bloomberg) — One trader just took on a massive bet that U.S. stocks will rally into the end of 2021.

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The flurry of trades with the SPDR S&P 500 ETF Trust (SPY) — which took place between 10:34 a.m. and 10:41 a.m. New York time — involved call spreads maturing in each of the next three months. The total cost was about $50 million. Should all the contracts be in the money by their respective expiration dates, they would be worth $136 million — for a profit of roughly 70%, according to an estimate from Chris Murphy, co-head of derivatives strategy at Susquehanna.

“These trades all share very similar footprint,” said Murphy. “It could be someone who is underweight equities and says, ‘if this thing explodes to the upside by the end of the year, then I’m going to be in trouble. So why don’t I put on a couple of these call spreads just to cover myself?’ That’s one situation. Or it could be someone who’s bullish getting more bullish.”

The transactions occurred right before the Federal Reserve’s policy decision. The S&P 500 climbed more than 1% Wednesday, snapping a four-day decline, as concerns about China Evergrande Group’s debt woes eased. Down 2.6% in September, the index is heading for its worst month in almost a year.

It “seems like someone putting money to work to play for a rally into year-end following the recent selloff,” said Danny Kirsch, head of options at Cornerstone Macro LLC. “Interesting they’re also doing it in front of the Fed meeting, perhaps think the outcome will be market positive.”

Here are the details of the trades using bullish options on SPY:

  • 25,000 Dec. 448/470 call spreads for $7.91

  • 32,000 Nov. 448/460 call spreads for $4.35

  • 43,000 Oct. 442/452 call spreads for $3.89

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