The Big Bet! $900 Million in Options Trade?

This story is definitely something to keep an eye on this week....
or well at least until 4:00 PM (EST) Friday, September 21st.

What are you keeping an eye on? How about a $900 million bet in call options on SPY. For those unfamiliar with this particular EFT, SPY mimics the movements of the S&P 500.

This is a significant trade because it controls 120,000 shares of the Standard & Poor's Dep. Rec. exchange traded fund (also called “Spider”).

The most surprising fact may be the “deep-in-the-money” strike ranges of 65-90. The SPY is currently (9-18-07 @ 3:10 EST) trading at 151.29. For the SPY to hit this range, we would have to have an approximate drop of 40-50%. This would suggest that the S&P 500 would take a beating and fall to an uncomfortable range before Friday the 21st.

This unusual wager that “some observers have dubbed 'Bin Laden Trades,'” says, expires Friday, September 21st at the closing bell. Leaving an uneasy feeling this week for many traders. A drop like this for the S&P would be cataclysmic and unexpected.

Of course analysts are throwing theories into the wind. Personally I find this story creepy, and I am having a hard time trying to resist the idea of conspiracy, terrorism influence, or risky insider trading... but it sure is hard not to speculate “what the heck is going on, and who knows what?” It is difficult to understand what is going on considering that this story has not been greatly publicized. However, if you look at the September 2007 expiring options chains for SPY... you can barely ignore the volume spike in the strike price range of 65-90. SPOOKY.

SPY STANDARD & POORS DEP REC 148.8700 152.5000 148.1341 152.2300
+4.1300 +2.79%

What to do? In an article “This $900 Million Bet Has Global Traders Talking,” by Keith Fitz-Gerald of Money Morning insists that traders look at the facts, be aware of this news, yet avoid the hype. “I urge you to focus on the facts that we know, which is that somebody traded some very large blocks of options at some very unusual price points a mere three weeks prior to expiration. This means that at least one-half of the traders involved expect something big to happen, and pronto, while the other half hopes that nothing will happen – and feels confident enough to believe that they’re correct,” says Fitz-Gerald.

I know that I am in the “hopes nothing will happen category.” I sure HOPE that I'm correct!

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