XLE – Energy Select Sector SPDR ETF – Shares of the energy fund are up more than 1% to $52.92. We observed near-term bearishness and medium-term bullishness displayed through options on the ETF today. A ratio put spread initiated in the September contract indicates near-term pessimism by some traders. The transaction involved the purchase of 2,500 puts at the September 52 strike for 1.69 apiece spread against the sale of 5,000 puts at the lower September 48 strike for 55 cents each. The net cost of the trade amounts to 59 cents and yields maximum potential profits to the downside of 3.41 if shares fall to $48.00 by expiration. Bullish sentiment was seen at the December 57 strike where 2,100 calls were coveted for 2.00 apiece. An 11.5% rally in shares to the breakeven price of $59.00 will allow this optimistic energy player to begin to amass profits by expiration in December.
PFE – Pfizer, Inc. – A short straddle initiated in the pharmaceutical company’s January 2011 contract today suggests far-term bullish sentiment on the stock. Shares of PFE are currently higher by approximately 0.5% to $16.71. The straddle was enacted at the January 20 strike where 15,000 calls were shed for 1.12 apiece and 15,000 puts sold for 4.90 per contract. The gross premium on the transaction amounts to 6.02, and will be fully retained by the straddle-seller if shares settle at $20.00 by expiration. Over the next sixteen months shares must rally about 20% for the trader to bank the full 6.02 premium. If the stock fails to center at $20.00, the investor’s premium will erode down to zero if shares move sufficiently in either direction. Once the entire premium has evaporated, the trader will begin to accrue losses above the breakeven point to the upside at $26.02 or beneath the breakeven point to the downside at $13.98. We note that Pfizer has not traded above $20.00 since May 20, 2008. Nearer-term trades indicate that investors may be bracing for declines in the stock. The October 16 strike price had 4,100 puts picked up for 43 cents apiece while the higher December 17 strike had about 2,400 puts purchased at 1.34 per contract.
FRE – Freddie Mac – Investors were observed making bullish bets on Freddie today as shares soared higher than 30% at times to a maximum of $2.34. Shares are currently up 23% to stand at $2.12 this afternoon. Option traders positioning for a continued rally scooped up 4,100 calls at the September 3.0 strike price for 16 cents apiece. Optimism spread to the October 3.0 strike where more than 5,400 calls were coveted for 28 cents per contract. Shares of FRE must surge another 55% in order for call-buyers to breakeven at a price of $3.28 by expiration in October. Additional bullish action was seen at the October 2.0 strike where traders shed 1,200 puts for an average premium of 42 cents each. Investors short the puts receive the 42 cents premium in exchange for bearing the risk that the stock slips lower by expiration. If this should occur, traders will have shares of the underlying put to them at an effective price of 1.58 apiece.
GLD – SPDR Gold Trust ETF – The gold exchange-traded fund had some interesting option trades initiated during the trading session. Shares of the underlying are currently down more than 1% to stand at $92.57. One investor was seen banking gains by enacting a closing purchase of a large short put position in the December contract. It appears that this trader originally sold 38,000 puts at the December 75 strike price for an average premium of 2.30 per contract back on May 6, 2009. Today he bought back the put options for about 37 cents apiece. The investor has enjoyed net profits of 1.93 per contract for a total of $7,334,000 by closing out the position today. Bullish action was observed in the March 2010 contract in the form of a call spread. It seems that one trader chose to purchase 16,000 calls at the March 100 strike for 4.60 apiece spread against the sale of 16,000 calls at the higher March 120 strike for 1.60 each. The net cost of the transaction amounts to 3.00 per contract and yields maximum potential profits of 17.00 in the event that the GLD rallies up to $120.00 by expiration. The investor will breakeven on the trade if the fund rises 11% from the current price to breach the breakeven point at $103.00 by expiration.
