XLF – Financial Select Sector SPDR – Shares of the XLF, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, slipped 1.60% lower during the trading session to arrive at $14.10 as of 12:22 pm (ET). One bearish player expecting the price per share of the underlying fund to continue to erode purchased a ratio put spread in the September contract. The investor picked up 10,000 puts at the September $14 strike for a premium of $1.40 each, and sold 20,000 puts at the lower September $11 strike to receive a premium of $0.56 apiece. Net premium paid to enact the bearish spread amounts to $0.28 per contract. The trader responsible for the transaction is prepared to make money should shares of the XLF trade below the effective breakeven price of $13.72 ahead of September expiration. Maximum potential profits of $2.72 per contract are available to the investor if shares of the ETF plummet 22% to settle at $11.00 at expiration day. Shares of the XLF have not traded below $11.00 since the fund touched down at a 52-week low of $10.83 on July 8, 2009.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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