IB Options Brief: Materials Select Sector SPDR ETF (XLB) & Energy Select Sector SPDR ETF (XLE)

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XLB ñ Materials Select Sector SPDR ETF
Bearish positions cropped up on the Materials Select Sector SPDR within the first 30 minutes of the opening bell this morning. Shares in the XLB, an exchange-traded fund tracking the performance of the Materials Select Sector of the S&P 500 Index, touched a new 52-week high of $39.60 earlier in the session, but are currently flat on the day at $39.47 as of 11:50am.

One investor positioning for shares in the fund to fall initiated a debit put spread, buying 7,700 puts at the June $39 strike for a premium of $2.04 each, and selling the same number of puts at the lower June $35 strike at a premium of $0.82 a-pop. The net cost of the transaction amounts to $1.22 per contract. Thus, the trader is poised to profit should shares in the ETF drop 4.3% from the current price of $39.47 to breach the effective breakeven point on the downside at $37.78 ahead of June expiration.

The investor could walk away with maximum potential profits of $2.78 per contract if XLB shares fall 11.9% in the next 5 months to trade below $35.00 by expiration in June. The Materials SPDR has worked its way up from a 52-week low of $27.67 on July 1, 2010, rallying 43.1% since then to touch $39.60 earlier today.

 

XLE ñ Energy Select Sector SPDR ETF
Shares in the XLE, an exchange-traded fund that provides investment results that correspond to the price and yield performance of the Energy Select Sector of the S&P 500 Index, reached their highest level since September of 2008 this morning. The price of the fundís shares increased as much as 0.65% during the session thus far to touch an intraday high of $74.83. It looks like some option strategists are extending bullish sentiment on the energy sector through March expiration. Other optimists appear to be staking fresh bullish claims in the same expiry.

Large volume generated in March $71 and $74 strike in-the-money call options is likely the work of investors rolling previously established long calls at the lower strike up to the $74 strike price. Open interest patterns in the March $71 strike calls suggests the contracts selling there today were originally purchased for an average premium of $1.82 each back on January 20 and 21. Approximately 25,000 deep in-the-money calls at the March $71 strike were sold this morning for an average premium of $4.34 each in order to purchase the same number of calls up at the March $74 strike at an average premium of $2.34 apiece. The roll up to a higher strike suggests some investors continue to be bullish on the energy sector through March expiration.

Another energy-optimist purchased a 5,000-lot March $77/$80 call spread for a net premium of $0.77 per contract. This trader makes money if shares in the XLE rally another 3.9% to surpass the effective breakeven price of $77.77 by expiration day next month. Maximum potential payout on the spread amounts to $2.23 per contract, but requires that shares surge 6.9% over todayís high of $74.83 to trade above $80.00 before the contracts expire in March.


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