SPY – SPDR S&P 500 ETF – A massive bearish put spread purchased on the SPY this morning suggests one big options market participant is bracing for the S&P 500 Index to pull back ahead of November expiration. Shares of the SPY, an exchange-traded fund designed to correspond to the price and yield performance of the S&P 500 Index, edged 0.15% lower to $116.47 by 11:45 a.m. in New York trading. Domestic stocks have had a terrific run up since the end of August, but bullish momentum hit a speed bump this morning as news out of China inspired a return to risk aversion, rally in the dollar and renewed concerns the Chinese economy may slow down. The bearish put spread was initiated ahead of the release of FOMC minutes and perhaps reflects uncertainty regarding the amount and form quantitative easing may take. The put player purchased 100,000 puts at the November $112 strike at an average premium of $1.575 each, and sold the same number of puts at the lower November $110 strike for a premium of $1.15 apiece. Net premium paid to establish the spread amounts to $0.425 each, or total premium of $4.250 million. Thus, profits or downside protection are available to the investor if shares of the SPY fall approximately 4.145% from the current level of 164.4 to breach the average breakeven point at 115.575 by expiration day. Maximum potential profits of $1.575 or $15.750 million are available to the put spreader if the SPY ETF falls 5.5% to trade below 110.0 by November expiration. The S&P 500 Index would need to undergo an approximate 50% retracement of the past month’s gains in order for the trader to book maximum available profits by expiration day.