How One XLF Options Trader Made $1.7 Million

XLF shares have been descending since hitting an early March high

Apr 19, 2017 at 1:42 PM
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Bank stocks are in focus this week, with earnings season getting into full swing. Not surprisingly, options traders have set their sights on the Financial Select Sector SPDR Fund (XLF). Today, put options on the exchange-traded fund (ETF) are crossing at 1.6 times the usual intraday rate.

Taking a quick step back, puts have been the options of choice on XLF for a while. In the last two weeks, traders have bought to open 2.30 puts for every call at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHXLX) -- in the bearishly skewed 77th annual percentile.

Narrowing down to near-the-money strikes, put open interest in the front three-months' series is also very put-focused. Specifically, XLF boasts a top-heavy gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.65 -- meaning put options more than double calls.

In today's trading, the June 22 and 24 puts are the two most active strikes. According to Trade-Alert, a speculator is likely closing out the spread for $0.81 apiece, or about $3.2 million (net credit * 40,000 contracts * 100 shares per contract). The spread was originally opened on March 21 for $0.37 apiece, or about $1.5 million, hinting at a profit of more than $1.7 million. In other words, this XLF options trader more than doubled his money in a month, if our assumptions are correct.

That said, options traders are opening positions today, too. It looks like one speculator purchased a block of 20,000 weekly 4/28 23-strike puts, counting on XLF shares to breach the near-the-money $23 level by next Friday's close.  And, on the call side, one trader may have bought an 8,000-contract lot of May 24 calls, hoping for a bounce through back-month expiration, at the close on Friday, May 19.

Technically speaking, the Financial Select Sector SPDR Fund (XLF) briefly plunged out of the gate, falling as far as $20.91. At last check, however, they were up 0.2% at $23.12. Longer term, the shares rode the Trump trade higher from November through early March, but since topping out at $25.30, XLF's been fading.

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