XRT – SPDR S&P Retail ETF – A large-volume bearish ratio put spread enacted on the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, suggests one pessimistic options strategist is bracing for near-term erosion in the price of the underlying fund through July expiration. Shares of the ETF are down 2.5% to stand at $37.13 as of 10:50 am (ET). The retail-bear purchased 20,000 puts at the July $37 strike for an average premium of $0.93 per contract, and sold 40,000 puts at the lower July $34 strike for an average premium of $0.295 apiece. Average net premium paid for the spread amounts to $0.635 per contract. The investor responsible for the transaction is poised to profit if shares of the XRT decline another 2.05% from the current price to breach the average breakeven point on the spread at $36.365 by expiration day next month. Maximum potential profits of $2.365 per contract are available to the ratio-spreader should shares of the retail fund fall 8.4% to settle at $34.00 by July expiration. The greater proportion of short puts at the lower strike price indicate the trader, while certainly near-term bearish on the fund, is not expecting the XRT’s shares to collapse in the next several weeks to expiration day.
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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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