From the IB Options desk:
XLF – Financial Select Sector SPDR – The banking ETF is on the rise by about 1% to stand at the current price of $12.03. Bullish call buying was observed at the just in-the-money August 12 strike price where it appears that one investor scooped up more than 47,000 calls for an average premium of 75 cents per contract or an approximate total of $3,525,000. The breakeven point on the trade of $12.75 implies that shares must rally at least 6% from the current price before the trader may begin to realize profits from today’s transaction.
XHB – SPDR S&P Homebuilders Fund – Exactly one month ago at the end of May we observed a chunky option positioned initiated on the XHB. It was a bullish play at the time and shares have moved a little lower during the last four weeks. Today we cannot tell whether the investor is closing the call spread at a loss, but our intuition is that the investor is taking advantage of even cheaper premiums to expand exposure to a recovery in economic terms, which of course should show up later in the summer for a rally in homebuilders’ share prices. We saw one option player transact an identical 25,000 lot call spread at the 15 and 17 strikes this morning for a net premium of just 10 cents. With almost three months before the trade expires it seems to us that this is a cheap play to try and take advantage of recovery prospects in the mortgage market. The original call spread initiated this time last month was put to work at a net cost of 30 cents. With shares today at $11.97 we’ll have to await Tuesday’s open interest data before determining whether this was opening or closing. The investor would require a summer rally of 25% to get to the $15.00 share price before this trade comes good.