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Patient XLF optimist targets January 2011 combination

Today’s tickers: XLF, DUK, DOW, GE, CX, GME, SEPR & ADBE XLF – Financial Select Sector SPDR – Helping pummel the S&P index and continuing to sour the tone today is a 9.5% slump in the financial select sector ETF, which is now trading at $6.22 and as if we need to mention it, that’s a fresh lifetime low. In the front March contract there is heavy call volume at the 8.0 and 9.0 strikes, both trading to bid and ask illuminating a decidedly mixed picture. Catching our eye at the January 2011 strike is a curious bullish combination in which an investor appears to have created a ratio put spread at the 4.0 and 5.0 strikes in which twice as many puts were sold at the lower strike. Some 10,000 puts were sold at a premium of 96 cents while 5,000 were bought at the 5.0 strike for 1.51. The net premium creates downside losses starting at $3.45. The other leg of the trade appears much higher up on the call side where some 5,000 calls were paid for at the 20 line with a 21 cent premium. We’re assuming that this investor is pitching camp in the 2011 contract to help weather the financial storm in hopes that sunny days will prevail after the clouds dissipate leaving him well positioned for the inevitable rebound. DUK – Duke Energy Corporation – The energy company experienced a 3% decline to $12.06, but did not deter bullish action by one investor in the April contract. At the 12.5 strike price, over 18,000 calls were purchased for an average price of 53 cents apiece. Perhaps this trader was taking advantage of falling call premiums given today’s share price decline. In order to profit from the trade shares will need to rally by 8% to the breakeven price of $13.03. Option implied volatility has surged from 37% earlier in the day to the present reading of 49.5%. DOW – Dow Chemical Co. – Shares of the chemical manufacturer have declined 6.5% to $6.60, reaching a new 52-week low for the stock. We observed bearish option trades in play, the largest of which occurred at the March 5.0 strike price where 20,500 puts were purchased for 34 cents each. This investor is likely buying protection from further downside movement in shares, and it is likely that he is long the stock. The bearish picture continues into April where we saw…
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