XRT – SPDR S&P Retail ETF – One bearish options strategist purchased a plain-vanilla debit put spread on the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, in the first 30 minutes of the trading session just before shares of the fund rallied up 1.3% to touch an intraday high of $39.22. Shares of the ETF slipped lower since the put-spreader purchased the transaction, and are currently down 0.90% to stand at $38.37 as of 2:20 pm (ET). The investor appears to be bracing for continued bearish movement in the price of the underlying fund by picking up 5,000 puts at the July $36 strike for a premium of $1.11 each, marked against the sale of the same number of puts at the lower July $31 strike for an average premium of $0.30 apiece. The net cost of the put spread amounts to $0.81 per contract, thus positioning the trader to profit if shares of the XRT dip below the average breakeven price of $35.19 ahead of expiration day. Maximum potential profits of $4.19 per contract accumulate for the investor as long as shares of the retail fund plunge 19.20% from the current value of $38.37 to breach $31.00 by July expiration.
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.
Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.
Visit: Interactive Brokers