One Big Option Trade Fueled S&P 500’s Midday Jump, Wells Fargo Says

(Bloomberg) — One giant options transaction may have sparked the S&P 500’s bounce on Wednesday, according to Wells Fargo & Co.

The trade, which involved buying and selling call options tied to the index at a cost of around $31 million, probably helped fuel a recovery that saw the benchmark gauge erase a 1.8% decline, says Chris Harvey, the firm’s head of equity strategy.

Theories that derivatives trading has potentially driven movement in an underlying asset have been relatively common in this year’s topsy-turvy markets, though are also often disputed. Generally, the view is that a market maker on the other side of an options transaction will have to buy or sell stocks to balance positioning.

We are primarily funded by readers. Please subscribe and donate to support us!

Depending on the exposure, a concept referred to by the Greek word delta, the dealer may exert outsized influence on the market. This time, in the eyes of Harvey, the impact was positive.

“The Greeks of the trade are likely what gave a mid-day pop to the S&P 500,” Harvey wrote in a note to clients.



Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.