Posted on 01/14/2019 10:07:15 PM PST by BenLurkin
The trader sold 19,000 put options on the S&P 500 Index obligating him or her to buy the market benchmark at 2,100 on Dec. 18, 2020, data from New York-based options analytics firm Trade Alert showed.
As long as the index doesn't drop more than 22 percent from its current level of 2,582 by that date, the bet will earn the trader roughly $175 million in premiums.
Buffett's Berkshire Hathaway sold billions of dollars in stock index options between 2004 and 2008, betting that markets would rise over the next 15 to 20 years. Although the trades were made anonymously, they were eventually disclosed in regulatory filings.
Berkshire has taken in more than $4 billion in premiums on the options. The holding company has other contracts that have not expired, including a final tranche that will settle in 2026.
(Excerpt) Read more at cnbc.com ...
An equally (or more) interesting question, who is on the BUY side of all these puts? That is, who thinks that the market in December 2020 will be 25% lower than its current level (i.e., a pretty horrible bear for the next two years)?
Does this mean he’s betting ON the market(s&p)?
Yes, the seller of the puts is betting that the market will be up (or at least not as down more than ~22%). The buyer of the puts is betting the market will be down 22% or more by Dec 2020. If the market really is that crappy for the next two years, the Democrats will have a good shot at the White House.
Could just be someone hedging their position as downside protection.
If the market is down that much the Democrats will have a good chance of winning every state in the union.
Typically the buyers of a put that far out are protecting a holding against a drop.
So someone holding S&P 500 mutual funds in their retirement accounts may decide to by a put around their retirement as insurance against a large drop.
Personally I’ve done poorly on options this past year. I bought some calls prior to the election anticipating a pubby win in both houses and lost what I put down when the market tanked.
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