Unusual Options Activity In Financial Select Sector SPDR ETF $XLF

| March 16, 2015 | 0 Comments

Unusual Trading VolumeUnusual Options Activity In Financial Select Sector SPDR ETF $XLF          

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

Financial Select Sector SPDR ETF $XLF is the most actively traded financial sector ETF.  The ETF trades over 33 million shares per day.  Check here for more info on the fund.

XLF is down 2% on the year so far.  The current share price of $24.32 is just 3% from the 52-week high of $25.14 and 16% above the 52-week low of $20.91.

So what does unusual options activity in XLF tell us?

Financials have been trading in a fairly narrow range since roughly last November.  Basically, the low has been about $23 and the high about $25 during that period.  It’s pretty safe to say the ETF hasn’t been very volatile.

For most of February, XLF had been even less volatile… trading in just a $0.50 range.  Perhaps financial sector investors are waiting to see what happens with interest rates.  Keep in mind, interest rates impact the financial sector more than any other.

Here’s the deal…

Last week, over 60,000 XLF June 25 calls traded on a single day.  A block of nearly 35,000 of those went up for $0.37 per contract.  Keep in mind, a call makes money when the underlying stock (or ETF) goes up.

At $0.37 per option, the total cost of the trade (and max loss) is about $1.3 million.  The breakeven point for the trader is $25.37.

Here’s the chart of XLF:

unusual option activity, a chart of XLF

As you can see from the chart, XLF is trading above the 50-day moving average but remains in a tight range.  The breakeven point for the big trade is above the longer-term upper bound of $25 – but not by much.

An out-of-the-money, inexpensive call purchase like this could mean several things.  Certainly, there could be other parts to this trade we’re not aware of.

However, the most obvious reason for the trade is likely correct.  In this case, it’s simply a large, (relatively) cheap bet that the financial sector will see additional upside by June.  It could be related to the Fed’s timetable for raising interest rates.  Or it could be another catalyst entirely.

Regardless, it’s an interesting move, and one worth keeping an eye on.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.