Big Prints in Bearish Options on Financial Select Sector SPDR (XLF)

Editor’s Note: Related tickers: JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), Citigroup Inc. (NYSE:C), Bank of America Corp (NYSE:BAC), Goldman Sachs Group, Inc. (NYSE:GS), U.S. Bancorp (NYSE:USB), American Express Company (NYSE:AXP), Financial Select Sector SPDR (NYSEARCA:XLF), GlaxoSmithKline plc (NYSE:GSK), Macy’s, Inc. (NYSE:M)

Financial Select Sector SPDR (NYSEARCA:XLF) – Shares in the XLF are in negative territory this morning, down 0.90% at $18.39 as of 11:10 a.m. ET, amid broad-based declines in U.S. stocks spurred by an unexpected 0.4% decline in March retail sales and other soft economic data points. The price of the underlying fund is also being pressured by declines in JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) following first-quarter earnings reports from those companies prior to the opening bell. JPMorgan and Wells Fargo combined represent roughly 16% of the total holdings of the XLF. Big prints in short-dated XLF put options in the early going this morning suggests one trader is positioning for shares to extend losses in the near term. It looks like the strategist purchased 100,000 puts at the April 19 ’13 $18 strike for a premium of $0.06 per contract. The position starts making money if the price of the underlying declines 2.4% from the current level to breach the effective breakeven price of $17.94 by expiration next week. Put options on the XLF are far more active than calls, with the put/call ratio above 13.0 as of the time of this writing. Five of the top ten holdings in the XLF report quarterly earnings next week, including Citigroup Inc. (NYSE:C), Bank of America Corp (NYSE:BAC), Goldman Sachs Group, Inc. (NYSE:GS), U.S. Bancorp (NYSE:USB) and American Express Company (NYSE:AXP).

GlaxoSmithKline plc (NYSE:GSK) – Bearish options changing hands on drug maker, GlaxoSmithKline, look for shares in the name to potentially slip further off a multi-year high of $48.55 realized on Thursday. Shares in GSK are down 0.40% on the day at $48.32 as of 11:45 a.m. ET. The April $47 strike puts on GSK are active for a second consecutive session, with roughly 5,000 contracts purchased this morning and around 2,000 lots purchased yesterday, all at a premium of $0.25 apiece. Put buyers make money if shares in GSK decline 3.25% from the current price of $48.32 to settle below the effective breakeven point at $46.75 by expiration next week. These April expiry puts expire the week prior to GlaxoSmithKline’s first-quarter earnings report on April 24th.

Macy’s, Inc. (NYSE:M) – A large bear put spread initiated on Macy’s today protects against, or profits from, a more than 3.0% adverse move in the price of the underlying through the department store operator’s first-quarter earnings report on May 15th. Shares in Macy’s are bucking the trend today, up 0.90% at $44.71 as of 12:20 p.m. ET, amid a down day for U.S. stocks. The stock earlier rose to $45.39, the highest level since 2007. It looks like one trader purchased a 6,400-lot May $41/$44 put spread at a net premium of $0.83 per contract. The trade makes money if shares in Macy’s decline 3.4% from the current level to trade below the breakeven price of $43.17, with maximum potential profits of $2.17 per contract available in the event that shares slide 8.3% to $41.00 by May expiration. In contrast, buyers of the May $46 and $48 strike calls on the retailer today are positioning for shares in the name to soar to fresh record highs in the near term. Traders paid an average premium of $0.87 each for around 800 of the $46 strike calls and roughly $0.33 per contract for 300 of the $48 calls.

Caitlin Duffy
Equity Options Analyst

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