I trade sp and dow options, as well as many other futures/options contracts.
The reported "large" purchases of options at 650 strike and above is congruent
with the Federal Reserve offering of $2 billion at the Discount window last
week. In fact, it is a perfect fit.
In light of the recent "allowed" changes in collateral offerings to the Federal
Reserve, these recent SP500 option purchases could, and most likely are
collateral for the "loan" of $2 billion.
It would not be unusual at all for the Fed to make this demand, so one cannot
simply "take the money and run." This would support the marketmakers that are
underwriting the option contracts.
It is called an "open interest play". Simply put, the number of call contracts
are matched to written put contracts. This creates a "neutral" delta hedge.
In other words, if the market goes up or down, either party holding the
opposite side of the trade will not get hurt.
This open interest will probably not change much in the coming weeks. It will
depend on the time premium attached to the "loan." If one sees huge changes in
the open interest at these strikes, then the game begins in earnest.
As you are well aware of, it is the ability to obtain credit, that determines
whether a stock market will go up or down. Once we see the Federal Reserve
"changing" the rules, and accepting less and less viable collateral, we know an
"awakening" is at hand.
Best of luck, and congrats for a job well done.
