SPDR Select Technology Sector Fund Options (XLK): Unusual Trading Activity

| March 26, 2012 | 0 Comments

XLK option activityOptions in the Technology Select Sector SPDR ETF (XLK) experienced an enormous amount of unusual trading activity on Friday.

The stock closed down fractionally at $29.91, with gigantic options trades made on the bearish side.

One such trade was made just after mid-day.

One option trader came in and made the largest option trade on the XLK in months.  The purchase he made was a put spread.  This bearish strategy is made by buying one put option and then selling another put option at a lower strike.

In this very aggressive trade, the trader bought 20,000 contracts of the $29 strike put options for an average price of $0.19.  At the same time, he sold 20,000 contracts of the April $28 strike put options for $0.09.  So, this trade was done for a total cost of $200,000.  Sounds like a lot of money.

But for an average professional option trader, it’s really not.

However, what would be a large amount of money is the $1,800,000 profit this trader will make if the XLK drops a mere 6.5% to $28 a share by April expiration.  That’s the maximum gain for this trade.

And according to our tracking system, this trade carries a greater than 75% probability that this trader will earn at least some profit.

As a professional option trader myself, I wouldn’t hesitate at all to make this same trade.

For those of you who don’t know, XLK is an ETF.  Its largest holdings include stocks like Apple (AAPL), Microsoft (MSFT), IBM (IBM), and Oracle (ORCL).

It seems clear that Friday’s huge trade on the XLK comes on the heels of a major move in this sector… after the last few months of the stocks in this ETF being in a major uptrend.

So, with the technology sector at akey technical resistance point, option traders think it’s the perfect time to exercise a little caution.

It’ll be interesting to see if they’re right!

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.

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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.