Options Trading News

May 23, 2013  Thu 4:45 AM CT

Investors are using options to adjust huge bullish positions in large sectors at low cost.

optionMONSTER's Heat Seeker tracking program detected heavy call volume in the SPDR Technology (XLK) and the SPDR Financial (XLF) exchange-traded funds. The trades were very similar and occurred less than 10 minutes apart, so they may have been the work of a single large institutional player.

First, the traders sold 20,000 June 32 calls on the XLK for $0.51 and bought a matching number of July 33 calls for $0.27. The next transaction involved the sale of 60,650 XLF July 20 calls for $0.55 and the purchase of 60,650 August 21 calls for $0.27.

In both cases, volume was below open interest in the nearer-dated contracts that were sold. This suggests that existing long positions were closed and rolled forward in time. The XLK trade generated a credit of $0.24, and the XLF roll yielded $0.28.

Adjusting their positions let the investors take some money off the table while adding a month of long exposure. They also reduced the amount of money they could lose in the event of a short-term pullback because the new contracts have lower deltas and are less susceptible to time decay. (See our Education section)

The XLK fell 1.09 percent to $31.75, and XLF declined 1.05 percent to $19.83.

The transactions were the largest in both funds. Total option volume was triple the daily average in both, as well.

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