Options Trading News

November 30, 2012  Fri 3:47 AM CT

One investor is timing a trade in the financial sector, using options to lower the cost.

Our tracking systems detected the purchase of 35,000 December Quarterly 16 calls on the Select Sector Financial SPDR Fund for $0.16. An equal number of Weekly 16 calls expiring next Friday, Dec. 7, were sold at the same time for $0.06. Volume exceeded open interest in each strikes, indicating that a new position was implemented.

The trader now stands to make money if the XLF stays below $16 through the end of next week and then rallies in the following three weeks. If it goes above $16 too soon or stays below that level through year-end, the initial investment of $0.10 will be lost. (See our Education section for more on the strategy, known as a calendar spread.)

The XLF rose 0.51 percent to $15.78 yesterday. The fund sporadically traded above $16 in September and October but then fell along with the rest of the market. It bounced at a key $15 support level in mid-November and has been holding its ground since.

The fund holds stakes in a large number of major financials, including Wells Fargo, JP Morgan, and Berkshire Hathaway.

Calls outnumbered puts by roughly 2 to 1 yesterday, which reflects the bullish sentiment.
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