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Financial ETF Sees Sizeable Bull Call Spread

Today’s tickers: XLF, NKE, SLV, WAG, CVS, PSS, RYL & TCB

XLF - A large bullish trade just went across the tape on the Amex in the financial sector ETF in which a 50,000 lot call spread traded in the XLF at a 27 cent premium involving 17 and 19 strike calls. The underlying share price of $15.08 would need to rally 14.5% over the course of the next three months to allow this investor to break even. We make it mid-October last year that the XLF share price last popped above $17, while recent overhead resistance has restrained the bulls at $15.50. – Financial Select Sector SPDR –

NKE - Call options on the maker of footwear and apparel were in high demand today with shares of NKE up 1.8% to $60.02. Nike is schedule to release results for the first quarter after the closing bell today. Analysts are expecting the firm to report 97 cents per share on revenue of $4.9 billion. Option traders exchanged more than 17,400 calls at the October 60 strike on existing open interest at the strike of just 6,900 contracts. Approximately 8,100 of the calls were purchased for an average premium of 1.78 apiece. The October 60 strike calls have managed to land in-the-money this afternoon. However, investors long the calls will not begin to amass profits unless the stock rises another 3% to breach the breakeven point at $61.78. Another 6,050 calls were exchanged at the higher October 65 strike for an average premium of 40 cents apiece. The higher strike calls were both bought and sold by investors placing bets on Nike ahead of first-quarter earnings results. – Nike, Inc. –

SLV - One investor initiated a long-term bullish play on the silver exchange-traded fund amid a slight 0.25% dip in shares to $15.88. The trader looked to the November 16 strike to purchase 14,000 calls for an average premium of 90 cents apiece. At the same time, the investor spread the nearer-term purchase against the sale of 14,000 calls at the January 2012 20 strike for 2.80 per contract. The trader pockets a net credit of 1.90 per contract on the transaction. The investor is likely expecting the calls to land in-the-money by expiration in November. If this occurs, he may exercise the options and take delivery of the underlying shares for an effective price of $14.10 [$16.00 – 1.90 = $14.10]. If the trader takes a long position in the stock, the short calls in the January 2012 contract essentially provide the investor with an exit strategy through expiration. Shares must surpass $20.00 in the next couple of years for the underlying stock position to be called away from the trader. The investor will be left with gains of 42% on the rise in shares if the stock is eventually called from him at $20.00 each. – WiShares Silver Trust ETF –

WAG - The second-largest drugstore chain in the U.S. exceeded analysts’ expectations by posting fourth-quarter profits of 44 cents per share. Shares burst through the 52-week high on the stock of $34.81 this morning, rising 10.5% to $37.83. Option traders took to the October contract to initiate bullish stances. Call-buyers targeted the October 38 strike where nearly 2,000 contracts were picked up for an average premium of 92 cents apiece. We observed other WAG optimists selling puts short 6,000 times at the October 35 strike for approximately 8 pennies each. Put-sellers retain the 8 cents as long as shares of the drugstore chain remain higher than $35.00 through expiration next month. Finally, plain-vanilla put purchases took place at the October 37 strike 1,000 times for a premium of 53 cents per contract. Perhaps these investors are locking in gains in case shares erode beneath the breakeven point at $36.47 by expiration day. Option implied volatility imploded 36% following earnings, descending from yesterday’s closing value of 31% to an intraday low of 23%. – Walgreen Co. –

CVS - Shares of the largest drugstore chain in the U.S. rose 3% during the session to $35.88. Perhaps the bullish move in the stock was partially fueled by Walgreen’s positive fourth-quarter earnings news. News this morning also revealed CVS aims to expand its partnership with Microsoft HealthVault to CVS Pharmacy clients. Apparently, the partnership will allow CVS Pharmacy users to download prescription histories in order to obtain Microsoft HealthVault records. We noticed heavy call volume at the October 36 strike, and initially assumed the contracts must have been bought by bullish investors. However, upon further inspection, the calls appear to have been sold nearly 12,000 times for an average premium of 80 cents apiece. Perhaps the short calls are held by an investor holding a long position in the stock. If this is the case, the trader is covered in the event that shares of CVS continue through $36.00 by expiration. We note that earlier in the trading session the calls were in-the-money briefly when shares of CVS traded 3.5% higher to $36.12. – CVS Caremark Corp. –

PSS - The holding company of Payless ShoeSource and Stride Rite experienced a 1% rally in shares to $18.11 during the trading session. Bullish options activity on the stock indicates at least one investor expects PSS to experience continued upward movement through expiration in November. A bullish reversal strategy employed in the November contract involved the sale of 2,500 puts at the November 15 strike for 30 cents apiece. The sale of the puts partially funded the purchase of 2,500 calls at the higher November 20 strike for 60 cents per contract. The net cost of the transaction amounts to 30 cents each, and positions the trader to accumulate profits if the stock continues higher by expiration. Profits are available to the investor if shares rally 12% from the current price to breach the breakeven point at $20.30. We note that shares of Collective Brands have not traded through the breakeven point since October 12, 2007, when the stock was at $20.82. – Collective Brands, Inc. –

RYL - The homebuilder and mortgage-finance company’s shares are trading up nearly 1% to $21.97 after the release of the S&P Case/Schiller Home Price Index report for July. Ryland popped up on our ‘hot by options volume’ market scanner after a ratio put spread was established by one investor in the January 2012 contract. The trader may be long the underlying stock, and thus seeking long-term downside protection in case shares erode over the next couple of years. The ratio spread involved the purchase of 2,000 puts at the January 2012 20 strike for a premium of 6.30 each, against the sale of 4,000 puts at the lower January 2012 15 strike for 3.40 apiece. The transaction results in a net credit to the trader of 50 cents per contract. Retention of the 50 cent credit is ensured as long as shares remain higher than $20.00 through expiration. Downside protection from the put options kicks in if shares of RYL decline through $20.00 at any point during the life of the contracts. – The Ryland Group, Inc. –

TCB - An analyst’s downgrade yesterday seems to be still delivering its impact on consumer banker, TCF whose shares are down 4.6% to stand at $13.25. just last week its shares were trading at $15.36 and today the draw is towards support at the summer lows at around $13.00. One option investor appears to have rolled a previously established bearish play on the stock from the October puts to the same 12.5 strike expiring in November. The 10,000 lot trade could be protection against a long position in the stock, but the likelihood is that a bear has his claws out for the prospects for the Arizona-based lender. Recently, ratings agent Fitch maintained a negative outlook after it downgraded individual ratings on TCF Financial Corp. and its principal subsidiary TCF National Bank. The put options bought today expiring in November buy more time for a share price decline that would be needed to see this investor breakeven at $11.60. Option implied volatility of 57% infers a 36% chance of the 12.5 puts landing in-the-money. – TCF Financial Corp. –


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  1. XLF Trade – DEC BULL CALL spread! You mean to tell me someone bought the DEC 17-19 BULL CALL Spread for 27 cents.  Why bother opening a vertical spread when you can buy the $17 caller for .31 cents.  This trade makes NO sense to me.

    - XLF’d