XLI – Industrial Select Sector SPDR Fund – Put strategists populating the XLI, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Industrial Select Sector of the S&P 500 Index, initiated bullish and bearish transactions on the fund today. Shares of the ETF are currently trading 2.00% higher on the day at $29.52 as of 3:05 pm (ET). The first of the two large trades observed on the XLI was enacted by an investor selling-to-close a large-volume long put stance in the June contract. It looks like the trader originally purchased 27,000 puts at the June $28 strike for an average premium of $0.85 apiece back on May 21, 2010, when shares of the XLI were trading at a volume-weighted average price of $29.14. Today the investor appears to have sold 26,900 puts at the June $28 strike for a premium of $0.54 each. The sale of the put options indicates, perhaps, that the trader no longer anticipates a pullback in the fund’s share price to below the $28.00-level in the next several weeks to expiration. In isolation, net losses experienced on the closing sale amount to $0.31 per contract. In contrast to the sale of the puts bearish investors are building up debit put spreads in the July contract. It looks like put-spreaders today are adding to spreads purchased during Tuesday’s session. Investors picked up roughly 10,000 in-the-money puts at the July $30 strike for an average premium of $1.82 each, and sold about the same number of puts at the lower July $26 strike for an average premium of $0.50 apiece. Net premium paid to establish the trade amounts to $1.32 per contract. Thus, investors long the spread are prepared to make money if shares of the fund fall 2.85% from the current price to breach the average breakeven point at $28.68. Maximum potential profits of $2.68 per contract are available should the XLI’s shares decline about 12% to breach $26.00 by July expiration day.
Affiliation: Interactive Brokers
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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