In addition, as the market declines the options dealers have
to sell increasing amounts of stock futures to remain hedged.
Those trades generated some $2 billion in selling pressure and
likely contributed to the index’s intraday reversal, McElligot
said. Selling pressure could rise to as much as $5 billion if
market declines accelerate, he added.
The S&P 500, which rose as much as 0.9% early in the session,
lifted by a strong sales forecast from chipmaker Nvidia , reversed course to fall as much as 0.6% by noon. The
index was last up 0.5% at 4,010.22.
Trading in short-dated options contracts, or 0DTE- zero days
to expiry contracts - have garnered attention on Wall Street in
recent months, drawing record volumes and boosting worries about
their role in aggravating intraday stock price swings.
McElligot said that Thursday's trade was "obviously
institutional in origin," noting that it was probably the
largest 0DTE block seen to date.
(Reporting by Saqib Iqbal Ahmed; Editing by Chizu Nomiyama)
By Saqib Iqbal Ahmed
NEW YORK, Feb 23 (Reuters) - An intraday dip in the S&P
500 Index on Thursday was spurred by large trades in
short-dated derivatives that piled selling pressure on the
market, according to Nomura strategist Charlie McElligott.
Some 26,000 Feb 23 put options on S&P 500 e-minis futures with a strike price corresponding to the 4,000 level
were bought early in Thursday’s session, McElligott said in a
note.
When a trader buys a put - an options contract that conveys
the right to sell a security at a fixed price in the future -
options dealers on the other side of the trade have to hedge
their own risk by selling stock futures.
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