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Technology Bull Boosts Optimism

Today’s tickers: XLK, EEM, XLP, WLP, DTV, AMAT & EEM

XLK – SPDR Technology Select Sector ETF – A massive calendar roll was initiated on the Technology Select Sector exchange-traded fund today. Shares of the ETF, which corresponds to the performance of publicly traded equities of companies in the technology sector, rallied nearly 0.5% to $22.29 during the session. One investor sold roughly 73,900 calls at the now in-the-money December 22 strike for a premium of 41 cents per contract. The trader likely purchased the options for 40-49 cents premium per contract back on September 18, 2009, when shares of the XLK were at $20.87. The closing sale of the original call position today was spread against the purchase of 73,900 fresh calls at the higher January 23 strike for 24 cents each. The calendar roll indicates the investor expects shares of the fund to reach a new 52-week high by expiration in January. Profits amass on the new bullish stance if shares rally above the breakeven price of $23.24.

EEM – iShares MSCI Emerging Markets ETF – A large-volume put spread traded in the June contract on the emerging markets fund this afternoon. Shares of the ETF stand 0.15% higher to $41.03 as of 1:45 pm (EDT). It looks like investors, who are likely long shares of the underlying, are purchasing long-term downside protection on the EEM. Approximately 49,000 puts were picked up at the June 38 strike for an average premium of 2.95 apiece, and spread against the sale of roughly 43,000 puts at the lower June 28 strike for 65 cents each. Perhaps put spreaders fear emerging markets could encounter a few speed bumps as the global economy continues to fight its way out of recession in 2010. Traders employing the put plays are protected if shares of the fund dip back down through $38.00 by expiration in June.

XLP – Consumer Staples Select Sector SPDR – The XLP ticker symbol launched to the top of our ‘most active by options volume’ market scanner today after a huge chunk of call options changed hands. Shares of the fund, which replicates the total return of the Consumer Staples Select Sector of the S&P 500 Index, gained 0.5% during the trading day to $26.90. Approximately 106,000 call options traded at the January 27 strike for an average premium of 32.5 pennies per contract. Open interest of 116,354 contracts at that strike exceeds the number of lots exchanged today. Investors could be selling to close previously established long call positions. Alternatively, traders may be increasing or establishing bullish stances on the fund by purchasing the calls outright.

WLP – WellPoint, Inc. – Health benefits company, WellPoint, experienced a 2% rally in shares during the session to $56.44. One investor initiated a calendar spread on the stock in order to position for continued upward momentum in shares through expiration in June 2010. It appears the trader sold 8,300 calls at the June 60 strike for an average premium of 4.25 apiece in order to purchase the same number of calls at the now in-the-money December 55 strike for 1.75 each. The investor pockets a net credit of 2.50 per contract on the spread. The investor could choose to exercise the December contract calls to take delivery of WLP shares for $55.00 each. If the trader exercises the calls, the net credit received on the options play, effectively reduces the cost of buying the underlying shares to $52.50. In such a case the investor is long the stock and short June contract calls, which serve as an effective exit strategy on the stock position. If shares of WellPoint rally 6.3% to surpass $60.00 by June 2010, the trader will have the underlying shares called away from him. The investor, in this hypothetical transaction, will walk away with net profits of 14.25% on the rally in shares from $52.50 to $60.00.

DTV – The DIRECTV Group, Inc. – A bullish risk reversal on subscription television services firm, DIRECTV, suggests one investor expects shares to continue higher by expiration in March 2010. DTV’s shares rallied more than 0.5% to a new 52-week high of $33.16 as of 11:00 am (EDT). It looks like the option trader sold 2,500 puts at the March 32.5 strike for a premium of 1.85 apiece in order to purchase 2,500 in-the-money calls at the same strike for a premium of 2.50 each. The net cost of the reversal amounts to 65 cents per contract. The bullish investor is now positioned to accrue profits above the effective breakeven point at $33.15 through expiration day in March.

AMAT – Applied Materials, Inc. – The manufacturer of equipment for the semiconductor industry attracted bullish investors during today’s session with shares trading nearly 1% higher to $13.61. Investors positioned for AMAT’s shares to reach a new 52-week high by expiration in January 2010. It appears approximately 20,000 calls were purchased at the January 14 strike for an average premium of 40 cents per contract. Call-buyers accumulate profits if shares rally 6% from the current price to surpass the breakeven point at $14.40 by expiration. The current 52-week high on the stock is $14.19, attained back on July 30, 2009.

EEM– iShares MSCI Emerging Markets ETF – Shares of the emerging markets exchange-traded fund climbed 0.25% to $41.07 today. The appreciation in shares of the underlying prompted one EEM-bull to take profits on a previously established short put position. It looks like the investor originally sold 18,000 puts at the January 33 strike for approximately 1.15 apiece back on November 2, 2009, when shares were at $38.11. Today the trader appears to have purchased to close the position by buying back 18,000 puts options for 20 cents premium each. Net profits on the trade amount to 95 cents per contract. Next, the investor established a new bullish stance on the fund. It seems the trader sold 18,000 puts at the higher January 36 strike for 45 cents premium per contract. The investor keeps the full 45 cent premium on the sale if shares remain higher than $36.00 through expiration in January of 2010.


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