Options Trading News

July 10, 2013  Wed 4:14 AM CT

An enormous put spread is positioning for a drop in the SPDR Financial Fund.

optionMONSTER systems show that 839,000 XLF options changed hands yesterday, compared to a daily average of 131,000 contracts in the last month. Most of the volume came in one four-way play.

A trader sold 95,596 August 19 puts for the bid price of $0.15 and bought the same number of August 17 puts for $0.04, with volume below the previous open interest in each strike. At the same time, the trader bought 95,596 October 19 puts for the ask price of $0.41 and sold the October 17 puts for $0.12 in volume above open interest at both strikes, indicating new positions.

The strategy was repeated just under an hour later with blocks of 73,574 for slightly lower prices.

The trader is rolling a put vertical spread out two months in time, spending an additional $0.18 for the adjustment. The resulting position would be worth $2 if the XLF is below $17 at expiration in mid-October. (See our Education section)

The XLF rose 0.85 percent to $20.14, its second-highest close. Shares dipped below $19 two weeks ago, and the exchange-traded fund was under $17 at the beginning of the year.
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The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

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