IYR Option Activity Shows Renewed Bearish Interest

If you were following iShares US Real Estate ETF (NYSEARCA: IYR) you likely noticed a large option trade that included two expirations and 4 strikes. This type of trade isn’t unusual, but it is significant because of its size and direction. We’ll take a closer look at the trade in just a moment, but to sum it up, it was a vertical roll.

If you’re not that familiar with an option roll, here is a short description. First, a roll is just closing one position and entering a new position done in a single transaction. For option spread, that means closing out the existing spread and entering a new spread. Also, the new spread will have a different strike and/or expiration combination. Second, a roll takes profits off the table and/or extends the duration and/or price target of the trade.

IYR Option Activity

The put option activity on IYR was significant with a put sizzle index of 2.065. That means that there was double the 5-day put volume today. The only issue was that 74% of the volume occurred between the market. That can often obscure things, but not necessarily if there are large prints that occur at the same time. Let’s take a look at the relevant activity:

• 12,833 22 OCT 21 $101 put BOT in 1 print @ $1.36
• 12,833 22 OCT 21 $98 puts sold in 1 print @ $0.60
• 14,655 15 OCT 21 $102 puts sold in 1 print @ $1.41
• 14,655 15 OCT 21 $99 puts BOT in 1 print @ $0.54

All of these contracts traded at one time. The time and sales indicate that the 15 OCT 21 $102 was sold at the bid and the $99 was bought at the ask. The open interest of the 15 OCT 21 expiration had less volume than open interest. That is a strong indication that it was a closing trade. The 22 OCT 21 strike had significantly higher volume than open interest. That means that the new bearish spread was opened.

Putting the pieces together, it points to the 15 OCT 21 IYR long put vertical being closed and a new one being opened for 22 OCT 21. The roll extends both the time to expiration and the downside expectations to below $98 by expiration.

Conclusion

Today’s vertical roll in IYR was significant in size, direction and the renewed bearish interest. It comes at a time when there has also been bearish activity in iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG). With all of the movement and talk about the U.S. Treasury market, it only makes sense that there could be some volatility in REITs.

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