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Tuesday, February 27, 2024

Energy Options Strangle Play Delivers the Goods for Investor

Today’s tickers: XLE, MFE, FITB, SLM, XHB, F, INTC & XLF

XLE – Shares of the energy fund are higher by about 1% to $48.35. We observed one energetic option investor who appears to have purchased to close an 8,000-lot strangle today, that was originally established back on May 8, 2009. It looks as though the strangle was originally sold for a gross premium of between 3.58 and 4.22 through the sale of 8,000 puts at the June 47 strike price and the sale of 8,000 calls at the June 53 strike. Today the investor bought back the position for a total of 31 cents per contract. Thus, this individual is left with net gains of between 3.27 and 3.91 each by closing out the position today. The trader has reeled in minimum profits of $2,616,000 or maximum profits of $3,128,000. – Energy Select Sector SPDR

MFE – The security technology company appeared on our ‘hot by options volume’ market scanner this afternoon amid a more than 4% rally in shares to $41.86. Bullish investors hoping for continued upward movement in the price of the underlying looked to get long of calls in the near-term July contract. Traders picked up more than 3,500 call options at the July 45 strike price for an average premium of 22 cents apiece. McAfee shares would need to climb higher by approximately 8% in order for individuals who are now long the calls to breakeven at a price of $45.22 by expiration. Option implied volatility on MFE has risen throughout the trading day from a low of 31% to the current reading of nearly 35%. – McAfee Inc.

FITB – The Ohio-based bank holding company has experienced a modest rally in shares by about 1.5% to $7.05. FITB caught our attention amid a call-to-put ratio of more than 18-to-1, suggesting bullish activity on the stock. Upon further investigation, it appears that today’s activity is the work of an investor initiating a calendar spread in the expectation of continued bullish movement in the stock through expiration in November. It looks as though this individual sold 10,000 calls at the August 9.0 strike price for a premium of 20 cents apiece and then spread the sale against the purchase of 10,000 calls at the November 9.0 strike price for 63 cents per contract. The net cost of the bullish stance amounts to 43 cents and yields a breakeven point at $9.43. Shares of FITB would need to climb 34% from the current price in order for the trader to begin to amass profits on the transaction. – Fifth Third Bancorp

SLM – Sallie Mae edged onto our ‘most active by options volume’ market scanner today amid a more than 10.5% surge in shares to $10.28. Shares of the biggest provider of U.S. student loans were lifted after FBR Capital Markets raised the stock’s price estimate. The bullish sentiment has some investors expecting continued bullish movement in the stock as evidence by the fresh call buying interest observed in the July contract. Approximately 1,500 calls were purchased at the July 11 strike price for an average premium of 43 cents each. Optimistic traders long of these contracts are hoping to see shares rise another 11% by expiration in order to amass profits beginning at the breakeven point at $11.43. – SLM Corporation

XHB– Exactly one month ago at the end of May we observed a chunky option positioned initiated on the XHB. It was a bullish play at the time and shares have moved a little lower during the last four weeks. Today we cannot tell whether the investor is closing the call spread at a loss, but our intuition is that the investor is taking advantage of even cheaper premiums to expand exposure to a recovery in economic terms, which of course should show up later in the summer for a rally in homebuilders’ share prices. We saw one option player transact an identical 25,000 lot call spread at the 15 and 17 strikes this morning for a net premium of just 10 cents. With almost three months before the trade expires it seems to us that this is a cheap play to try and take advantage of recovery prospects in the mortgage market. The original call spread initiated this time last month was put to work at a net cost of 30 cents. With shares today at $11.97 we’ll have to await Tuesday’s open interest data before determining whether this was opening or closing. The investor would require a summer rally of 25% to get to the $15.00 share price before this trade comes good. – SPDR S&P Homebuilders Fund

F – Having found recent support at $5.25, shares of Ford Motor Co. are 3.4% higher Monday at $5.79. Since May, investors on two occasions have forced Ford’s share price to a peak at $6.50, but if the option market is a good measure of what’s coming down the turnpike, the next three weeks could see pessimism left behind in the dust with investors banking on a 20% rally of from here. So far today option investors have sucked up 18,700 call options expiring in July at the 7.0 strike paying a nickel for the privilege of securing rights to buy shares in the company at $7.00 at or before expiration. With GM and Chrysler in bankruptcy, affairs at Ford have become but a sideshow. The thawing in the economy still faces chill winds in the form of rising unemployment but recent auto-industry statistics seem to indicate that annualized sales of light-trucks and cars should soon return to a rate of 10 million units. The option market indicates that the chances of a 20% rally over the next three weeks are just one-in-ten. – Ford Motor Co.

INTC– Shares of the semiconductor chip maker have enjoyed a 1% rally to $16.49 while other technology companies weighed heavily on the tech sector today. Option traders were seen locking into recent gains by INTC by getting long of protective put options in the near-term July contract. Perhaps these investors jumped into put positions for fear of potential bearish movement in the price of the underlying by next month’s expiration. The in-the-money July 17 strike price had nearly 12,800 put options purchased for an average premium of 80 cents per contract. More pessimistic put buyers looked to the lower July 15 strike where some 5,500 puts were coveted by traders for 12 cents apiece. – Intel Corporation

XLF– The banking ETF is on the rise by about 1% to stand at the current price of $12.03. Bullish call buying was observed at the just in-the-money August 12 strike price where it appears that one investor scooped up more than 47,000 calls for an average premium of 75 cents per contract or an approximate total of $3,525,000. The breakeven point on the trade of $12.75 implies that shares must rally at least 6% from the current price before the trader may begin to realize profits from today’s transaction. – Financial Select Sector SPDR

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