Mike Khouw Sees Unusual Options Activity In IWN

On CNBC's "Options Action," Mike Khouw said he saw more than double the average daily options volume in iShares Russell 2000 Value Index IWN on Tuesday. The volume was a result of a single trade.

Somebody sold 2,500 contracts of the June $110 calls and bought 2,500 contracts of the June $100 puts for a total cost of 30 cents. The trade is going to lose money if the stock stays above $100 at the June expiration and the loss could be bigger than the premium paid if it trades above $110.

It can make money if IWN drops below $99.70 at the June expiration. Khouw explained that the trader is probably hedging from a potential decline of more than 6% by a week from Friday.