Options Trading News

May 21, 2013  Tue 4:14 AM CT

The SPDR S&P Retail Fund has risen to record levels, but one trader apparently believes that it is due for a pullback.

optionMONSTER's Depth Charge system shows that a trader bought 5,000 June 77 puts for their ask price of $1.23 and sold 10,000 June 74 puts for their bid price of $0.54. The volume was well above the previous open interest of around 2,300 contracts in each strike, indicating that this is a new vertical spread.

The spread--also known as a ratio because one leg is twice as large as the other--cost just $0.15 to open, which is the maximum amount at risk if the XRT remains above $77. The maximum gain would be realized if it is right around $74 at expiration, as there is a time decay factor involved in the trade as well. (See our Education section)

The XRT finished yesterday at $78.11, up 0.46 percent, a record closing high. The exchange-traded fund was down at $54 at the start of the month, but it has been trending higher from support at $60 from the very end of 2012.

Yesterday's total option volume in the XRT topped 30,000, which is more than twice its daily average for the last month.
Share this article with your friends



The fastest money in the market
View full report »

Premium Services

Archived Webinar

Education & Strategy

Options Academy: More on the Covered Call Strategy

Last week, we talked about the Covered Call and the misconceptions that surround it. We spoke about how an investor must realize that the Covered Call is actually a premium collection strategy and not so much a directional one. If an investor can grasp this idea, the investor stands to do a heck of a lot better in the strategy than they currently do.

View more education articles »