Options Intelligence Report: Energy Select Sector SPDR ETF (XLE) & Saks, Inc. (SKS)
Bull Buys Large Call Spread On Energy Select Sector SPDR ETF
XLE ñ Energy Select Sector SPDR ETF
One optimistic options trader is hoping to see shares of the XLE gravitate back up to the current 52-week high on the fund of $62.30, attained on April 26, 2010, by December expiration. Shares of the XLE, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Energy Select Sector of the S&P 500 Index, increased 0.15% to $51.42 by 11:45 am ET. Earlier shares rallied as much as 0.50% to an intraday high of $51.60. Energy companies in the Index are primarily engaged in developing and producing crude oil and natural gas, as well as drilling and other energy-related services.
It looks like the long-term bullish investor expects shares of the fund to swell, perhaps because he expects heating-season to be fully underway by the end of 2010, or perhaps on reports hurricane-season is starting to pick up as summer draws to a close. The trader purchased 20,000 calls at the December $57 strike for premium of $1.02 apiece, and sold 20,000 calls at the higher December $62 strike at a premium of $0.23 each. The net cost of the transaction amounts to $0.79 per contract. Shares of the ETF must rally at least 12.4% over the current price of $51.42 in order for the call-spreader to break even on the spread at $57.79. Over-and-above $57.79, the investor reels in profits, booking maximum potential gains of $4.21 per contract if shares of the XLE surge 20.6% in the next four months to exceed $60.00 by expiration day in December.
SKS ñ Saks, Inc.
Frenzied options trading commenced right out of the gate this morning on news the retailer of luxury goods may receive a buyout offer to the tune of $1.7 billion. Investors scooped up both call and put options on the stock throughout the first half of the session as shares exploded to the upside, rallying as much as 34.00% at the open, to secure an intraday high of $8.85. The stock is currently up 22.7% at $8.10 as of 12:10 pm ET. The sharp rise in demand for options on SKS and uncertainty regarding the status of potential buyout offers fueled a 49.00% increase in the stockís overall reading of options implied volatility to a high of 86.56% in the first 20 minutes of trading. The majority of options players populating Saks are picking up put options. Perhaps investors are long the stock and seeking to lock in profits on the substantial run up in shares. An alternative motivation for put buying could be that traders expect Saksí shares to tumble if confirmed buyout offers fail to surface. Trading traffic in puts on the luxury goods retailer is heaviest at the September $9.0 strike where nearly 9,000 in-the-money contracts changed hands by 12:20 pm ET. It looks like the majority of these puts were purchased at an average premium of $1.20 each. Put buying spread all the way out to the January 2011 contract where investors picked up some 4,600 lots at the January 2011 $7.50 strike for an average premium of $0.80 each. All-in-all, options traders exchanged more than 2.3 puts on Saks today for each single call option in play thus far in the session. Notable call volume was observed at the September $9.0 strike as traders bought and sold approximately equal portions of the 5,500 lots traded at that strike by early afternoon.
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This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this materialare not suitable for all investors. Any opinions expressed herein aregiven in good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take intoaccount your particular investment objectives, financial situations orneeds and is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particularcircumstances and, as necessary, seek professional advice.
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