Options Update: CF Industries Holdings, Inc. (CF) & Financial Select Sector SPDR (XLF)

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CF ñ CF Industries Holdings, Inc.

Bearish option plays appeared on the manufacturer of nitrogen and phosphate fertilizer products today after the firm rejected rival Agrium Inc.ís increased takeover offer of $4.52 billion. Shares of CF are currently trading 4% lower to $77.20. Investors purchased put options at the now in-the-money December 80 strike for an average premium of 6.70 apiece. Perhaps put-buyers are protecting long stock positions. Otherwise, they are hoping to accrue profits if shares of CF decline through the effective breakeven price of $73.30.

Another trader unraveled a previously established bullish play in the January 2010 contract. The investor originally placed an extremely bullish 8,500-lot call spread at the January 90/100 strikes. However, the trader abandoned bullish sentiment today by closing out the spread. Option implied volatility on CF jumped 7.5% over Mondayís closing value of 52.9% to reach an intraday high of 55.9%.




XLF ñ Financial Select Sector SPDR

Shares of the financial exchange-traded fund slipped nearly 1% lower during the session to $14.70. One investor appears to have purchased 40,000 married put options on the fund today by simultaneously taking a long position in both shares of the underlying fund and put contracts. The June 2010 12 strike had 40,000 puts purchased for an average premium of 75 cents apiece. The put options yield downside protection in case shares of the XLF decline beneath the breakeven point at $11.25 by expiration in June of 2010.

However, the investor responsible for the transaction is likely long-term bullish on the financial sector, and hopes shares will gain far more than the cost of the added insurance premium over the next seven months.


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