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October 3, 2011  Mon 1:44 AM CT

XLY: SEE CHART GET CHAIN FIND STRATEGIES
The SPDR Consumer Discretionary Fund pushed back down to support at the end of last week, and a large option trade is looking for further downside.

The XLY exchange-traded fund finished Friday down 2.87 percent at $34.86, its lowest close in more than a month  and at a support area going back more than a year. Shares have been trapped between that level and $38 since coming off a 52-week high above $41 in July.

More than 48,000 options traded on Friday, 4 times the daily average for the XLY. Of that volume, 41,000 were puts and most were in a single spread. A trader bought 15,000 December 33 puts for the ask price of $1.59 and sold the same number of December 27 puts for the bid price of $0.50.

This put spread costs $1.09, which is the most that can be lost if the XLY remains above $33. To take a full profit, at expiration the shares will have to be at levels last seen in November 2009. (See our Education section)
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So far, my articles have taken you through a logical progression of option theory and fundamental concepts of options. As of yet, I have not mentioned a single strategy and for a good reason! The actual application of a strategy should come AFTER you learn about the option product itself.

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