Strangle Purchased on Financials (XLF)
Shares of the Financial Select Sector SPDR Fund (XLF) are trading lower on the session by 0.89%, at $14.99. The ETF has remained range-bound over the past three months, finding support near $14.00 and resistance around $15.40.
One trader is betting that that range will break over the course of the next 16 months. A short while ago, the January 2014 $15/16 strangle was purchased 2,057 times, on the offer, for a net debit of $3.31-3.33.
At this moment, it is unclear whether the trade was opening or closing given the respective open interest of 20,332 and 18,021 contracts. One thing to keep in mind is that, even if this is a closing transaction, it still voices the same opinion about the expected relative range of the XLF over the time period.
At $3.32, the trader is saying that he or she believes the XLF will trade outside of $19.32-11.68, an average expected move of over 25%. The trader is essentially getting long vol.
Current historical and implied volatility is registering 17% and 10%, respectively. They are down from 36% and 40%, just 9 months ago.
The Financial Select Sector SPDR Fund seeks to provide investment results that before expenses correspond generally to the price and yield performance of publicly traded equity securities of companies in The Financial Select Sector Index.
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