XRT – SPDR S&P Retail ETF – A sizeable put spread initiated on the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, could be the work of an investor bracing for a pullback in the price of the underlying fund ahead of January 2011 expiration. Shares of the fund increased 1.45% during the final trading day of the week to touch an intraday high of $43.02. The put player purchased 22,000 lots at the January 2011 $42 strike for a premium of $2.29 each, and sold the same number of puts at the lower January 2011 $36 strike at a premium of $0.70 each. Net premium paid to establish the spread amounts to $1.59 per contract. Looking at the transaction from a pure options perspective, that is, without knowing what the investor’s underlying positions are or whether the spread was tied to stock, the trade is profitable for this individual if shares of the XRT fall 6.05% from today’s high of $43.02 to breach the effective breakeven point to the downside at $40.41 by January expiration. The investor walks away with maximum potential profits of $4.41 per contract if the fund’s shares plunge 16.3% in the next several months to expiration day.
NTGR – Netgear, Inc. – Bullish players are picking up in- and out-of-the-money call options on the maker of networking products for small business and at-home users this afternoon ahead of the firm’s third-quarter earnings report scheduled for release after the closing bell on October 20, 2010. Netgear’s shares increased as much as 2.6% at the start of the session to secure an intraday high of $27.00. Shares are currently up 1.55% to stand at $26.72 as of 1:40 pm in New York trading. Investors hoping to see shares extend gains through expiration next month picked up 1,000 in-the-money calls at the November $26 strike at an average premium of $1.89 each. Call buyers are prepared to make money should NTGR’s shares rally 4.4% over the current price of $26.72 to surpass the average breakeven point to the upside at $27.89 by expiration day. Bullish sentiment spread to the higher November $27 strike where another 1,200 calls were coveted at an average premium of $1.33 apiece. Investors holding these contracts profit if the price of the underlying stock jumps 6.025% to trade above the average breakeven price of $28.33 by November expiration. Netgear hit its current 52-week high of $28.96 back on April 26, 2010.