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By Chris McKhann

Are traders really looking for the S&P 500 to drop 9 percent in the next week? The index is pushing back toward three-year highs, but today's option volume is topped by deep out-of-the-money Weekly puts. The SPX is up 5.6 points to 0.41 percent to 1371.36. It saw an intraday high yesterday and a closing high on Tuesday, the highest since June 2008.

The SPX has the most widely traded equity index options, with a daily average of 480,000 contracts in the last month. While the SPDR S&P 500 Fund (SPY) trades more options, with a daily average of 1 million, the notional value of the SPX is more, as they are 10 times the size of the SPY options.

The new Weekly option contracts that rolled out today, which expire next week, allow us to see new positions. Leading that action are the March Weekly 1150 puts, which have traded more than 24,000 times, almost all of them in two prints for the ask price of $0.15.

This put buying initially suggests that a trader believes that the SPX will drop 10 percent or so in the next week, as that is the only way those put will be in the money. But they certainly could be part of a larger strategy that would not necessarily be directional.

The SPX options are usually used by big institutions, so this could be part of a tail-risk strategy or someone trading these puts against VIX calls or futures as a relative-value hedge. There are also a whole host of other hedging strategies that could at play here, ones that do not necessarily mean that the buyer expects such a drop. (See our Education section.)

Source: What May Be Behind S&P 500 Put Action