XLF – Financials Select Sector SPDR ETF – The purchase of a debit put spread in the January 2012 contract 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, suggests one options strategist is long-term bearish on the financial sector. Shares of the ETF declined 0.85% during the current session to stand at $14.03 as of 2:38 pm (ET). The pessimistic put spreader purchased 2,500 puts at the January 2012 $13 strike for a premium of $2.17 each, and sold the same number of puts at the lower January 2012 $10 strike for an average premium of $1.07 apiece. The net cost of the transaction amounts to $1.10 per contract and positions the responsible party to amass profits if shares of the fund fall 15.2% to breach the average breakeven price of $11.90 by expiration in 2012. Maximum potential profits of $1.90 per contract are available to the trader if shares of the XLF plummet 28.7% from the current price of $14.03 to slip beneath $10.00 ahead of January 2012 expiration. The ETF’s shares last traded below $11.90 – the spread’s breakeven price – back on July 22, 2009, when shares touched an intraday low of $11.89 each. The current 52-week low on the financials fund is $10.83 per share, established 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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