XLF – Financial Select Sector SPDR ETF – The single-largest trade initiated in XLF options on Tuesday protects against a limited, albeit substantial, adverse move in the price of the underlying fund during the next few months. Shares in the XLF reached their highest level in nearly two years this past Friday, trading up to $17.08 on the heels of a more than 25% rally since this time last year. The Financial Select Sector SPDR ETF is off slightly today, trading lower in line with the broader market, with the shares now down 0.70% to stand at $16.89 as of 12:45 p.m. in New York trading. One large options market participant is prepared to see continued declines in the price of the underlying with the purchase of a 95,000-lot April $14/$16 put spread today at a net premium outlay of $0.275 apiece. The spread makes money if shares in the XLF dip 7% to breach the effective breakeven price of $15.725, with maximum potential gains of $1.725 per contract available in the event of a more than 17% pullback to $14.00 by April expiration. Though the transaction was not tied to stock, it’s possible the position was implemented to hedge a long position in shares of the XLF.
PERI – Perion Network Ltd. – Shares in Tel Aviv, Israel-based digital media company, Perion Network, jumped more than 30% to a new all-time high of $12.47 today after the company forecast higher-than-expected earnings and sales for 2013. Options traders anticipating further gains in the price of the underlying during the next five weeks appear to be buying upside calls on the name. The Feb. $12.5 strike calls are the most actively traded contracts on Perion this morning, with upwards of 1,100 calls in play versus zero open positions. One or more bullish strategists acting within the first 10 minutes of the opening bell this morning purchased around 200 of the calls at a premium of $0.65 apiece. These contracts make money at expiration next month as long as shares in PERI top the effective breakeven price of $13.15. The value of the $12.5 strike call has increased intraday, with premium required to buy the contracts up 30% since this morning to stand at $0.85 each as of midday in New York. Perion Network Ltd. is scheduled to report fourth-quarter earnings ahead of the opening bell on March 6th.
VRA – Vera Bradley, Inc. – Call options on the maker of bags and accessories are active today, but the preponderance of selling over buying in the most active contracts suggests some traders doubt shares in Vera Bradley will push higher in the near term. The stock today trades down 2.6% on the session at $23.71 as of 12:20 p.m. ET. The Jan. $25 strike calls changed hands roughly 1,000 times during the first half of the trading day against previously existing open interest of 471 contracts. Time and sales data suggests most of the volume was sold at an average premium of $0.43 apiece. Call sellers walk away with the full amount of premium received on the position as long as VRA shares settle below $25.00 at January expiration. If traders are naked short the calls, losses start accumulating on the transaction in the event that shares in Vera Bradley rally at least 7% by expiration next week.