By David Russell
Options activity surged in an obscure materials ETF yesterday as investors worried China may slam the brakes on the global economic expansion.
The UltraShort Basic Materials ProShares (SMN) exchange-traded fund provides double-short exposure to the materials sector, which includes mining, chemical, and metals stocks. In a period of 11 minutes, an investor amassed 132,000 April 12 calls for $0.30 and $0.40 against open interest of 77,843 contracts, according to our Heat Seeker tracking system.
SMN soared 9.38 percent to $8.51 yesterday as investors reacted to concern Chinese policymakers will tighten credit conditions to restrain accelerating economic growth. Some 138,987 contracts changed hands in the fund, 339 times greater than average.
Materials stocks were the worst sector in the S&P 500 in the session, falling 4.33 percent versus a 1.89 percent decline for the broader market. Given the sector's strong performance in the last month, the activity in SMN may have resulted from an investor looking to hedge other long positions.
The fund needs to rally 46 percent by expiration for the calls purchased today to turn a profit.
Other investors bought about 5,000 February 8 calls--mostly for $0.65 to $0.70--giving them almost immediate exposure to moves higher. Overall calls in SMN outnumbered puts by 1,578 to 1, reflecting bullish expectations for the ETF and a bearish posture toward materials stocks.
(Chart courtesy of tradeMONSTER)
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