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Big prints in XLF calls see upside in financial stocks

Big prints in XLF calls see upside in financial stocksFinancial Select Sector SPDR (NYSEARCA:XLF) – Heavy volume in February expiry call options on the XLF this morning may be the work of one or more traders positioning for shares in the financials ETF to get back to highs last seen in February 2011. The price of the underlying fund in the early going slipped 0.85% on Friday to a session and 11-week low of $15.06 before positive comments from Congressional leaders in Washington sparked a strong midday rally in equities. Shares in the XLF reversed earlier losses and now trades up 0.40% on the session at $15.24 as of 12:50 p.m. in New York. Traders exchanged nearly 100,000 call options at the Feb. $17 strike by 12:45 p.m. ET versus previously existing open interest of just 4,391 contracts. It looks like the bulk of the volume was purchased at a premium of $0.10 per contract, setting call buyers up to profit at expiration should XLF shares rally 12% during the next few months to top the effective breakeven price of $17.10. Upside call buyers are perhaps looking for financial stocks to move higher in the event that positive talk at the White House this afternoon translates into positive action from lawmakers in the months ahead.

Visa Inc (NYSE:V) – Stocks bounced off morning lows at midday after Congressional leaders meeting with President Obama to tackle the impending fiscal cliff made conciliatory and positive comments to members of the press at the White House today. Traders buying weekly calls on Visa, Inc. earlier in the trading session are seeing the value of their positions increase sharply intraday as the stock moves higher with the market. Shares in Visa are up 2.3% at present to stand at $143.21 as of 12:15 p.m. ET. Upside call buyers looked to the weekly Nov. 23 ’12 expiry options in morning trading, picking up a couple hundred of the $140 strike calls at an average premium of $2.59 each and purchasing some 135 of the higher $145 strike calls when the price of the underlying was hovering around $141.00. Strong gains in Visa’s shares since this morning now finds the price tag on the $140 strike calls has jumped to $4.00 apiece, while premium required to buy the $145 strike calls has tripled to $0.90 per contract.

Yahoo! Inc. (NASDAQ:YHOO) – Shares in Yahoo!, up more than 20% since the start of September, tacked on 0.5% this morning to stand at $17.98 just before midday in New York. Trading traffic in weekly calls expiring next Friday suggests some strategists are positioning for shares in the online media company to extend gains in the near term. Bullish traders purchasing around 1,000 in-the-money calls at the Nov. 23 ’12 $17 strike for an average premium of $0.90 apiece in the early going, stand ready to profit at expiration next week should YHOO shares settle above $17.90. Weekly call buying spread to the higher Nov. $18 23 ’12 $18 strike where more than 615 call options were picked up at an average premium of $0.17 each. Traders long the $18 calls may profit in the event that Yahoo’s shares increase another 1.05% to top a breakeven share price and new 52-week high of $18.17 by expiration.

Caitlin Duffy

Equity Options Analyst

The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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