Wednesday, July 1, 2009

IWM Call Options Unusual Volume Intraday

The market movements these days are very predictable in a sense. There is a spike in the morning that will keep the indices floating most of the day, or there's a spike at the end of day that miraculously saves the day from any severe loss. Today was the former. The market today started the sudden descent right after 10:00 AM EST, and at 10:15 AM EST it reversed and started a rapid ramp-up.

There are increasing talks of market manipulation - started in chats, message boards, blogs (which are being ridiculed and vilified constantly these days by MSM), and taken up even by CNBC and Bloomberg. The favorite tool for manipulation seems to be S&P futures and SPY, but I've heard other market tracking ETFs mentioned.

Then, after the market was over as I was flipping through different charts for the market tracking ETFs (SPY, QQQQ, IWM, etc.), I found this. It's an intraday chart of IWM July call option (strike at $51). Someone bought 20,000 call options at 10:00 AM EST, at $1.53 a piece. That's over $3 million. Options on SPY or QQQQ didn't have such large purchase.

IWM tracks Russel 2000 index. Since the index tracks small to mid-size companies, it has higher beta than the broader market index like S&P 500. If you want to move the market, what better tool to use than a high beta index, or better yet, a derivative (option) of the derivative (IWM) of the index (Russel 2000)?

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