A mystery trader just made a massive bet on the S&P 500 that could lose $558 million if the market turns
- A trader sold 19,000 put options on the S&P 500 Index. The bet could pay off about $175 million, or lose big - up to $558 million.
- CNBC reported that the trade was probably a hedge.
An anonymous derivatives trader is betting big on the S&P 500.
The trader sold 19,000 put options on the benchmark that would obligate him or her to buy the index at 2,100 on December 18, 2020, CNBC reported, citing data from options analytics firm Trade Alert showed. The S&P 500 opened at 2,586.18 on Tuesday.
It could be a winning bet to the tune of about $175 million, as long as the index doesn't drop more than 22% from Monday's closing level of 2,582 by that date.
But if the S&P 500 goes the wrong way, the trader may stand to lose up to half a billion dollars.
For example, if the index drops 34% by December 18, 2020, the losses could amount to about $558 million, CNBC said, citing Refinitiv analysis.
Some in the market said the trade was probably a hedge against another position rather than as a speculative bet on a rally in the S&P 500.
"The natural sellers of long-term downside puts are structured products desks at banks, who are hedging exposure they get from retail clients who buy structured notes that have embedded short put options," Benn Eifert, chief investment officer at QVR Advisors in San Francisco, said on Twitter, according to CNBC.
"That would be my default guess on this."
