Today’s tickers: XLF, CMCSA, IBB, IYR, KBE & RIG
XLF – Financial Select Sector SPDR ETF – Investors heavily favored put options over call options on the financial SPDR today despite the 4.4% rebound in the price of the underlying stock to $15.75. Earlier in the trading session shares of the XLF, an exchange-traded fund seeking investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, increased 6.15% over Friday’s closing price of $15.09 to reach an intraday high of $16.02 in the first 30 minutes of the session. Options traders populating the fund today initiated decidedly bearish transactions signaling shares of the fund may be unable to retain the current rebound. Near-term pessimism took the form of a large-volume debit put spread in the May contract. It looks like one investor purchased 36,000 puts at the May $15 strike for a premium of $0.17 apiece, and sold the same number of puts at the lower May $14 strike for $0.07 each. The net cost of the trade amounts to $0.10 per contract, thus positioning the put player to pocket maximum potential profits of $0.90 per contract should shares decline 11.11% from the current price to breach the $14.00-level by expiration day. The trade is perhaps the work of an investor still smarting from last week’s market meltdown now taking advantage of relatively cheap downside protection today to hedge against similar catastrophic events. Bearishness spread to the June contract where another pessimistic individual enacted a put butterfly spread. The transaction involved the purchase of 10,000 now in-the-money puts at the June $16 strike for a premium of $0.67 each [wing 1] and the purchase of 10,000 puts at the lower June $14 strike for $0.23 apiece [wing 2]. The body of the butterfly, nestled between the two wings at the central June $15 strike, involved the sale of 20,000 puts for a premium of $0.41 each. The net cost of the butterfly spread amounts to just $0.08 per contract. The trade yields maximum potential profits of $0.92 per contract to the responsible party if shares of the XLF fall 4.75% from the current price to settle at $15.00 at June expiration. The investor starts to make money if shares of the financials ETF slip beneath the upper breakeven price of $15.92. Options traders exchanged more than 440,000 contracts on the XLF by 3:05 pm (ET).
CMCSA – Comcast Corp. – The provider of entertainment and communications services was cut to ‘market perform’ from ‘outperform’ at Sanford Bernstein today where analysts have a 12-month target share price of $20.00 on the stock. Comcast’s shares surrendered 3.10% during the current session to stand at $17.79 as of 3:20 pm (ET). Options on CMCSA were very active in the second half of the trading day as investors littered longer-dated expiries with diverse strategies. It looks like one investor initiated a short strangle on Comcast by selling 5,000 puts at the October $15 strike for a premium of $0.75 apiece, in combination with the sale of 5,000 calls at the higher October $21 strike for $0.63 each. Gross premium pocketed on the trade amounts to $1.38 per contract. The strangle-player keeps the full premium received on the sale as long as shares of the underlying stock trade within the range of $15.00 to $21.00 through expiration day in October. We note that the call options, in this specific instance, traded to the middle of the market and therefore could have been purchased rather than sold for $0.63 apiece. In this scenario the trader receives a net credit of $0.12 per contract and keeps that amount as long as shares trade above $15.00 through expiration. Additional profits accrue should shares surge more than 18% to surpass the $21.00-level by October expiration.
IBB – iShares NASDAQ Biotechnology Index Fund – A couple of interesting options strategies employed today on the IBB, an exchange-traded fund that corresponds generally to the price and yield performance of the NASDAQ Biotechnology Index, suggests one trader is bracing for potential share price erosion by June expiration, while another investor expects shares of the underlying fund to remain range-bound through September expiration. Shares of the IBB are currently up 3.4% to $85.36 as of 12:15 pm (ET). One pessimistic player revealed bearish sentiment on the fund by establishing a three-legged options combination trade. The investor sold 2,500 out-of-the-money call options at the June $90 strike for a premium of $0.97 apiece in order to partially offset the cost of purchasing a plain-vanilla debit put spread. The trader purchased 2,500 puts at the June $85 strike for a premium of $2.43 each, and sold the same number of puts at the lower June $80 strike for $0.96 a-pop. Net premium paid for the spread is reduced to $0.50 per contract. Thus, the bearish player makes money if shares of the fund breach the effective breakeven point to the downside at $84.50 by June expiration. Maximum potential profits of $4.50 per contract accumulate should shares fall more than 6.25% from the current price to trade below $80.00 ahead of expiration day. Another options investor expecting shares of the IBB to trade within a specified range throughout the next several months sold a strangle in the September contract. The trader shed 1,000 calls at the September $90 strike for an average premium of $2.52 each, and sold the same number of puts at the lower September $75 strike for an average premium of $1.97 apiece. Gross premium pocketed on the strangle amounts to $4.49 per contract. The investor keeps the full amount of premium received as long as shares trade within the boundaries of the strike prices described through expiration. However the short stance taken in both call and put options expose the strangle-seller to potential losses should shares rally above the upper breakeven price of $94.49, or if shares collapse beneath the lower breakeven point at $70.51, by September expiration.
IYR – iShares Dow Jones U.S. Real Estate Index ETF – Shares of the IYR, an exchange-traded fund that tracks the Dow Jones U.S. Real Estate Index – an index that measures the performance of the real estate sector of the U.S. equity market, are currently up 5.55% to $52.37. The sharp rebound in the price of the underlying fund did not deter one pessimistic individual from initiating a bearish debit put spread in the first half of the session. It looks like the investor purchased roughly 3,000 puts at the September $49 strike for an average premium of $3.59 apiece, spread against the sale of about the same number of puts at the lower September $42 strike for an average premium of $1.59 each. The average net cost of the transaction amounts to $2.00 per contract. Therefore, the trader stands ready to amass maximum potential profits of $5.00 per contract should shares of the IYR plummet 19.80% from the current value to breach the $42.00-level by September expiration day.
KBE – SPDR KBE Bank ETF – One big options player booked significant profits on a previously established long put position on the KBE today. Shares of the KBE, an exchange-traded fund that replicates as closely as possible the performance of the KBW Bank Index, are up 5.56% to $27.13 as of 12:25 pm (ET). It looks like the trader originally purchased 28,260 puts at the May $27 strike for a premium of $0.40 apiece back on April 15, 2010, when shares of the underlying fund were trading at a volume-weighted average price of $28.30. Today, the investor sold all 28,260 put contracts at the May $27 strike for a premium of $0.72 per contract. Net profits enjoyed on the closing sale amount to $0.32 per contract for total gains of $904,320.00. Options implied volatility on the KBE is down 20.5% to stand at 38.09% as of 12:40 pm (ET).
RIG – Transocean Ltd. – Investors in the international provider of offshore contract drilling services for oil and gas wells continue to suffer following the tragic events of April 20th when the Deepwater Horizon rig exploded and sank in the Gulf of Mexico. RIG’s shares are trading 3.90% lower on the day at $65.36 as of 12:45 pm (ET) after the Wall Street Journal reported that Transocean Ltd. was involved in “73% of rig incidents investigated by the authorities since 2008.” Options traders anticipating continued share price erosion engaged in bearish trading behavior throughout the first half of the session. Near-term pessimists paid an average premium of $0.45 per contract to purchase 1,800 puts as low down as the May $55 strike price. Put-buyers make money if RIG’s shares plummet 16.5% from the current price to breach the average breakeven point on the puts at $54.55 by May expiration. Longer-term bearish sentiment appeared in the August contract where it looks like one investor initiated a bearish risk reversal on the stock. The investor appears to have sold 5,000 calls at the August $80 strike for a premium of $1.45 each, in order to purchase the same number of puts at the lower August $50 strike for $1.80 apiece. Net premium paid for the transaction amounts to $0.35 per contract. Options investors exchanged 85,825 contracts on Transocean as of 12:50 pm (ET).
