Bank fund faces huge four-way spread
Chris McKhann | firstname.lastname@example.org
The KBE is up fractionally to $22.12 in early afternoon trading. The exchange-traded fund has been trending higher since early June, when it matched the 2012 lows set in the first days of the year. Shares had climbed to 52-week highs above $24 going into April.
The option volume in KBE tops 51,000 contracts, more than 10 times its daily average in the last month and split almost exactly between calls and puts. The trade involves 12,801 each of the July 21 calls and puts and the August 22 calls and puts.
The trader bought the July 21 calls for $0.98 and sold the puts for $0.03, according to optionMONSTER's systems. The open interest at each strike was more than 34,000, and the timing suggests that the trade is closing this part of the position.
At the exact same time, the trader bought the August 22 puts for $0.65 and sold the calls for $0.55. The volume was more than open interest at each of these strikes.
Given that the July options expire at the end of this week, this appears to be a roll of a short position from July to August. The trader may be using that synthetic position to simply short the stock or is hedging a long stock position in an arbitrage play. (See our Education section)