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August 30, 2012  Thu 3:44 AM CT

XLB: SEE CHART GET CHAIN FIND STRATEGIES

Total option activity was light yesterday, a large bearish trade stood out on the SPDR Materials Fund.

Our Depth Charge monitoring system detected the purchase of 62,100 October 27 puts for the ask price of $0.07. Seconds later, 74,982 September 30 puts were sold at the $0.03 bid price, but volume was below open interest at that strike.

This certainly appears to be a roll of the September contracts, which are now the front month. They adjusted to the lower strike to minimize cost, and kept a delta of just 0.02. So, if XLB drops $1, the options will gain by a mere $0.02. It also suggests that there is only a 2 percent probability that those options will expire in the money. (See our Education Section.)

XLB rose 0.23 percent to $35.63 yesterday. It's been pushing higher since May and June, when the fund double-bottomed around $32.60.

The total options volume in XLB topped 144,000 contracts, less than 4,000 of which were calls. This compares to a daily average of 11,000 over the last month, so activity was clearly significant and clearly bearish.

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