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November 6, 2012  Tue 11:05 AM CT

XLE: SEE CHART GET CHAIN FIND STRATEGIES
The SPDR Energy Fund is pushing higher, but a large complex spread is looking for another leg down.

Total XLE option volume tops 104,000 contracts, which is more than triple its daily average in the last month. Almost all of the action is in one three-way combination trade, optionMONSTER's systems show.

A trader bought 28,100 June 70 puts for the ask price of $4.60, and at the same time sold the same number of June 66 puts for the bid of $3.05 and June 80 calls for $1.86. The volumes were more than open interest at each strike, indicating new activity.

The XLE is up 1.69 percent to $72.81 in early afternoon trading. The exchange-traded fund has broken out of its  range of the last couple of weeks but is still is trending lower from its 52-week high of $77.35 set in mid-September.

Today's combination trade takes in a credit on the trade and stands to make $0.31 if the XLE remains between $80 and $70 at expiration. The maximum gain would come with the fund at or below $66.

This could be hedging against an existing long position in the XLE, using the put spread as a collar. But such a position would lose its hedging effectiveness below $66. (See our Education section)
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