The Options Insider - Your Inside Source for Options Information, Options Education, & Options Trading.

News

Options InsiderAudio

Headlines, interviews, & analysis of hot options topics.

The Option BlockAudio

The latest developments in the options market.

Volatility ViewsAudio

The premier radio program for volatility traders.

The Long And Short Of Futures OptionsAudio

Your source for futures options information.

The Advisor's OptionAudio

Arming advisors with info necessary to manage risk.

Options Boot CampAudio

Get into peak options trading shape.

Options Insider Special EventsAudio

Compelling panel & special event recordings from options world.

In the Forums
eur exceptions
EUR/USD recorded a new high for the year on Friday before encountering resistance near the 61.8% ret...
Stuck with a trade, any help welcome
I trade index options on the Indian CNX Nifty Index (Bloomberg NIFTY:IND). Two weeks ago, with the I...
Not surprised by download volume
Dear Option Block crew - Listening to the latest episode and hearing Mark's comment over the am...
News Feed

Unusual Activity

Options Intelligence Report: Financial Select Sector SPDR (XLF) & Vivus, Inc. (VVUS)


Bearish Options Player Enacts Massive Ratio Put Spread On Financial Select Sector SPDR

XLF – Financial Select Sector SPDR
With the deadline to finish financial reform negotiations by today, pessimistic options players are franticly establishing bearish positions on the XLF, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, with shares of the fund down 1.65% to $14.27 as of 12:15 pm (ET). One big bearish trader initiated a massive ratio put spread utilizing a total of 210,000 put options in the August contract.

The investor purchased 70,000 puts at the August $14 strike for a premium of $0.69 apiece, and sold 140,000 puts at the lower August $13 strike for a premium of $0.37 each. The ratio spread yields a net credit of $0.05 per contract to the trader. The put player may be establishing the spread to protect the value of an enormous position in the underlying shares. In this scenario, downside protection kicks in if the XLF’s shares fall 1.9% to trade below $14.00 ahead of August expiration.

The parameters of the spread suggest the investor does not expect shares of the financials ETF to trade much below $13.00 because of the risk inherent in holding twice as many short puts. The trader faces losses if shares of the XLF plunge 16.25% from the current price of $14.27 to trade below the effective lower breakeven point at $11.95 by expiration day. Options investors exchanged more than 468,000 contracts on the fund by 12:30 pm (ET) with more than 15 put options changing hands for each single call options in play thus far today.

ADVERTISEMENTS  (ARTICLE CONTINUES BELOW)
FX Options – A New Way to Trade
FXOptions.com is first online trader community exclusively dedicated to FX Options. Get access to free trading ideas, tools, live webinars, virtual trading, news & commentary and the Trader Forum. Everything you need to know about FX Options, right at your fingertips.
LEARN MORE
Trade Options, Stocks and Futures in One Account at optionsXpress
OPEN AN ACCOUNT TODAY!
Stock Markets Too Volatile? How About Forex?
Learn how with The 10 Keys to Successful Forex Trading by Jared 'FXCHIEF' Martinez. Jared is your guide in this easy Forex tutorial covering the market's terminology, reading candlestick charts and formations, order types, and much more. Even if you never trade, this information is invaluable.
GET YOUR FREE EBOOK TODAY


VVUS – Vivus, Inc.
The biopharmaceutical company attracted a number of bearish options investors in the first half of the trading day with the price of its shares lower by 1.45% to $9.54 as of 12:50 pm (ET). The bearish strategies employed on Vivus today are perhaps the work of investors bracing for share price erosion if the firm’s obesity drug, Qnexa, fails to garner approval from the Food and Drug Administration. The FDA is slated to release a preliminary report of its findings on July 13, 2010, ahead of its final decision scheduled for October 28, 2010. One investor purchased a ratio put spread in the July contract, which will yield significant profits if shares of the biopharmaceutical company fall ahead of July expiration. The trader is perhaps hedging the possibility of a less-than stellar preliminary report in July, which would likely send VVUS shares reeling.

The options strategist purchased 2,500 puts at the July $9.0 strike at an average premium of $2.42 each, and sold 5,000 puts at the lower July $5.0 strike for a premium of $0.45 apiece. The net cost of the bearish play amounts to $1.52 per contract, thus positioning the investor to make money if Vivus’s shares decline 21.6% from the current price to breach the average breakeven point on the spread at $7.48 by July expiration day. The trader walks away with maximum potential profits of $2.48 per contract if VVUS shares plummet 58% to settle at $4.00 at expiration.

Another pessimist initiated a longer-term bearish bet on VVUS by purchasing a 2,000-lot plain-vanilla debit put spread at the September $9.0/$4.0 strikes at a net cost of $2.50 per contract. The transaction yields maximum potential profits of $2.50 per contract if shares fall 58% to trade at or below $4.00 by expiration day in September. Options implied volatility on Vivus is up 7.2% to 263.98% as of 1:05 pm (ET).

----------------------------------------------------------------------------------------------

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

  


Posted by Andrew Wilkinson | View more articles by Andrew Wilkinson

Share/Save/Bookmark
x

The Options Insider Radio Network

Volatility Views

The premier radio program for volatility traders. Interviews, analysis, & more.

Volatility Views

Options Insider Radio

Options headlines, interviews with market movers & analysis of hot options topics.

Options Insider Radio

The Option Block

An All-Star break down of the latest developments in the options market.

The Option Block

The Long And Short Of Futures Options

The Long and Short of Futures Options is your source for futures options information.

Long & Short

Options Boot Camp

Options Boot Camp is designed to help get you into peak options trading shape.

Options Bootcamp

The Advisor's Option

Designed to arm busy advisors with the information necessary to properly manage risk.

The Option Block

Options Insider Special Events

Compelling panel & special event recordings from options world.

The Option Block