Breaking Down 2 Huge XLF Options Trades – Schaeffers Research (blog)

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Bank stocks are at the forefront of today’s rally on Wall Street, with blue chip JPMorgan Chase & Co. (NYSE:JPM) sitting at the top of the Dow. The action has spread to JPM stock’s options pits, too, where calls are trading at an accelerated pace. Also seeing major options trading is the Financial Select Sector SPDR Fund (XLF), with the financial shares up almost 3% this week to trade at $24.53.  

Call volume is torching put volume today in the exchange-traded fund’s (ETF) options pits, with more than 286,000 calls traded versus 47,000 puts. This single-day put/call volume ratio of 0.16 sits just 2 percentage points from an annual low. In the lead by a mile is the July 25 call, where a mix of activity has taken place, including some closing, according to data from the International Securities Exchange (ISE).

Also popular is the August 25 call. Much of the action here took place when a trader possibly bought to open 28,000 contracts for 36 cents each. If this is indeed the case, this options trader bet roughly $1 million (premium paid * 100 shares per contract * number of contracts) that the shares of XLF will topple $25 before the options expire at the close on Friday, Aug. 18. 

Call buying is nothing new on XLF, though.  One trader yesterday likely bought to open 31,000 October 24 calls. This trader would have paid roughly $2.95 million for this bullish bet, with breakeven standing at $24.95 (strike plus $0.95 premium paid). In fact, Trade-Alert data indicates the ETF saw 37% bullish options volume yesterday — the most of any sector. 

It’s actually a great time to buy near-term options on the Financial Select Sector SPDR Fund. Specifically, XLF has a Schaeffer’s Volatility Index (SVI) of 14%, which is only 2 percentage points from an annual low. In other words, volatility expectations are lower than normal for short-term XLF options. 

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