S&P Depository Receipts (SPDRs, commonly referred to as spiders. Ticker symbol:
SPY) are an Exchange Traded Fund that was originally established to mimic the
movement of the S&P 500 Index.
SPDRs are traded on the American Stock Exchange and are priced at approximately
10% of the value of the cash S&P 500 Stock Index. At the close of business
today (24 August), the S&P 500 Index closed at 1479.37, up 16.87 points, while
SPY closed at 148.33, up 1.81 points.
There are two types of options: puts and calls. The buyer of a call option
holds the right but not the obligation to purchase an agreed upon number of the
underlying financial instrument or commodity from the option seller at a fixed
price during the option term.
The SPDR options in question are characterized by their identical volume totals
(10,000). They are deep, In-the-Money calls priced between 60 and 95. The
purchaser(s) paid a hefty premium to the option seller(s) to obtain the right
to purchase SPDRs at strike prices that are far below the current cash price of
the S&P 500.
To view a list of SPDR options by expiration date and strike price, log onto:
http://finance.yahoo.com/q/op?s=SPY
An online search uncovered the following analysis of SPDRs written by Neal
Chabot in 1999:
There are three important points to make about the Spiders, which anyone who
trades short-term would and should know.
1. Spiders are priced off the CASH index. The big marketing push for Spiders
is toward those who are longer-term traders/investors in the index mutual
funds, not for short-term traders.
2. The spread in the Spiders is often at least 10 times that in the futures,
which makes it very difficult to successfully trade them short-term.
3. Spiders can be shorted on a downtick, which gives you an advantage that
you do not have in stocks. This advantage would be for both those who are
trying to trade Spiders short-term, as well as those longer-term traders who
are being panicked by a market freefall and would like to hedge positions.
http://www.purebytes.com/archives/omega/1999/msg06219.html
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Here is additional information about the subject that can be found on George
Ure's website, UrbanSurvival.com:
I've been keeping track on the back of an envelope what the markets seem to be
telegraphing us about expected closing levels in September.
For example, on September 15th which I took my first reading on the Sept. S&P
options, the equilibrium point, where the long and short options balanced,
seemed to point at around 1,460-1,465 as the 'consensus' and the put to call
ratio was 1.4702. In other words, for each long/expecting markets to go up,
there were 1.4702 bets that the market would be going down.
Now, fast forward six trading days to the close of business Thursday/preopen
figures from this morning and let's see how the picture has changed, if at all:
Today, the equilibrium point has dropped to between 1435 and 1440. Also, the
put to call ratio has increased to 1.5162, meaning there are a few more people
taking the 'markets will drop' bet.
There has been some speculation on various message boards about what's going on
- some are suggesting that a Big Player knows the markets will be trashed in
September, while others look at this as a normal market action - because with
plenty of bears around, funds holding a lot of stock can sell puts and increase
their yield.
Part of me wants to believe that the action is nothing more than strong hands
selling off puts to hungry bears with the idea of fattening their portfolios.
But, the idea that a major Big Player has some inside information and is laying
in puts with a purpose hasn't escaped my attention, either. You might recall
that there were lots of puts laid on before 9/11 and as best I can recall, no
official investigation ever got to the bottom of who made money on that event.
Add to this, the idea that linguistically something is going to change the
world again starting about September 19th.
Serving Freedom
and Liberty
