XLF – Financial Select Sector SPDR – Bearish sentiment on 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, appeared in the first 30 minutes of the trading session as one pessimistic options player purchased a put butterfly spread in the July contract. Shares of the fund commenced the session slightly higher than Wednesday’s close, but surrendered the morning’s gains ahead of 11:00 am (ET) to trade flat at $14.82. The bearish investor purchased 20,000 puts at the July $15 strike for a premium of $0.78 apiece [wing 1] and picked up another 20,000 puts at the lower July $13 strike for a premium of $0.24 each [wing 2]. Finally, the body of the butterfly involved the sale of 40,000 puts at the July $14 strike for a premium of $0.43 a-pop. The net cost of enacting the butterfly spread amounts to just $0.16 per contract and represents the maximum loss potential faced by the investor. The spread trader stands ready to accrue maximum potential profits of $0.84 per contract should shares of the underlying fund decline 5.5% from the current price of $14.82 to settle at $14.00 at expiration next month. Shares of the XLF must slip beneath the upper breakeven price of $14.84 before the investor starts to make money. The transaction is a very efficient way for the trader to establish a pessimistic viewpoint on the ETF because the maximum potential loss of $0.16 per contract pales in comparison to maximum potential profits of $0.84 apiece. The reward-to-risk ratio in this case is greater than 5-to-1.