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XLF puts see heavy volume; FactSet options active ahead of earnings

XLF puts see heavy volume; FactSet options active ahead of earningsFinancial Select Sector SPDR (NYSEARCA:XLF) – US stocks are moving lower on Monday as European concerns creep back into the conversation, yet financial stocks are managing to hold onto slight gains this afternoon, with shares in the XLF up 0.06% at $15.84 as of 12:40 p.m. in New York. Put options on the Financial Select Sector SPDR ETF saw heavy volume near the open after one big options market participant established a large bear put spread. It looks like the strategist purchased a 165,000-lot Dec. $13/$15 put spread, paying a net premium of $0.265 per contract. The trade makes money if shares in the XLF decline 7% to trade below $14.735, while maximum potential profits of $1.735 per contract are available on the position in the event XLF shares plunge 18% from the current level to settle at or below $13.00 at December expiration. Shares in the XLF last traded below $13.00 in December 2011.

FactSet Research Systems Inc. (NYSE:FDS) Options on the provider of financial and economic data are active today ahead of FactSet’s fourth-quarter earnings report scheduled for release prior to the opening bell on Tuesday. Shares in FactSet Research Systems are up 2.5% at $103.05 as of 12:05 p.m. ET. Some options traders appear to be bulking up on downside puts ahead of earnings, while others are getting long bullish calls in anticipation of further gains in the price of the underlying shares in the near term. Strategists prepared to benefit from a pullback in the stock picked up around 450 puts at the Oct. $95 strike in the first hour of the trading week for a premium of $1.40 apiece. Put buyers may profit at expiration next month in the event FDS shares drop 9% to trade below the effective breakeven price of $93.60. Volume in FDS options is heaviest in the Oct. $100 strike where more than 2,000 puts changed hands in the first half of the trading day. Much of the volume, around 1,200 lots, appears to have been purchased by one options player at a premium of $2.85 per contract. These bearish puts yield profits, or downside protection, in the event of a 5.7% decline in the price of the underlying to $97.15 by expiration. Meanwhile, traders preparing for shares to extend gains snapped up around 200 calls at the Oct. $105 strike at a premium of $1.85 each and another 258 calls out at the Nov. $105 strike for a premium of $2.40 per contract. Upside call buyers may profit if shares in FactSet rally another 3.7% and 4.2% to top breakeven points at $106.85 and $107.40, respectively, by options expiration in October and November.

The Procter & Gamble Company (NYSE:PG) – Shares in the consumer products giant reversed earlier losses to trade up 0.20% on the day at $69.55 in early-afternoon trade. The stock touched a multi-year high of $69.83 on Friday, marking a near 20% rally in the share price since the end of June. Bullish options looking for the price of the underlying to extend gains in the near term attracted heavy volume in morning trade. The Oct. $72.5 strike call changed hands roughly 27,000 times in the first hour of the trading day versus previously existing open interest of 3,553 contracts. It looks like traders purchased most of the call options for an average premium of $0.07 apiece. Cheap upside calls on the stock may pay off at expiration if shares in Procter & Gamble tack on another 4.3% in the next four weeks to top the breakeven point at $72.57. The company is scheduled to report first-quarter earnings ahead of the opening bell on October 25th, the week following options 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.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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