Financial Select Sector SPDR Options (XLF): Unusual Trading Activity

| June 11, 2012 | 0 Comments

XLF OptionsOptions in the Financial Select Sector SPDR ETF (XLF) are trading the largest volume of 2012 this morning.  Our tracking system is lighting up with call buyers.

Option traders are concentrating their buying on the June and July $14 and $15 call options.

Just over the last few trading days, option traders have spontaneously changed their tune from put buying to call buying.

What’s more, since the Volatility Index is down today, traders aren’t paying a lot of money for premiums.

In early trading, XLF is flat at $14.12 a share.

The largest volume is on the XLF June and July $14 and $15 strike call options.  These contracts have already traded an eye-popping 22,000 contracts this morning.  The price paid was an average of $0.13 a share.

Remember, straight call buying is a strategy that’s used without any other options when traders believe a stock is going to see a significant rise in value.

I think more investors are getting bullish on the US banking sector. 

And the more I think about it, this makes perfect sense.  Some of the most important domestic data has now been released.  And from here on out, the lack of bad news will be viewed as good news.

You see, a lot of it comes down to the Spanish banks. 

Many investors think that even though the government could’ve just backstopped the Spanish banks, a bailout would be good enough.

Meaning, a backstop is simply like a guarantee that only a certain amount of money will be lost.

A bailout is the process of the government injecting money that in reality could be gone the next day.

So obviously a backstop is safer for the average investor.

In addition, I think this will trickle over to a stronger US banking sector.  The Spanish bailout should become rocket fuel for US banks within the next few days.

When you shore up one bank, usually the rest of the solid banks will follow suit.

So, why buy these particular strike prices?

With a market correction possibly winding down, option traders believe XLF could be at a bottom.

It has now moved above the 200-day moving average of $13.73 per share.  And XLF could easily move higher as the strength of the economy and the global banks increase.

In addition, premium in XLF is so cheap, option traders can’t afford not to take a shot at buying these inexpensive calls.  This could insure a huge winner at the end of the day.

So, there’s no doubt these option traders are positive on the banks. 

And as we’ve heard many times before, there can’t be a sustained market rally without bank participation. 

This is the perfect opportunity to jump in.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.