IB Options Brief: SPDR S&P Retail ETF (XRT) & Garmin, Ltd. (GRMN)

Posted November 2nd, 2011 by Caitlin Duffy in Unusual Activity

XRT ñ SPDR S&P Retail ETF
Put butterfly spreads are dominating the XRT for a second consecutive day, despite the more than 2.0% rally in the price of the underlying to $52.99 this afternoon. The rise in the shares today helped shave two pennies off the net cost of positioning for limited bearish movement in the XRT over the next couple of weeks. It looks like the investor responsible for the newest put ëfly purchased 10,000 puts at the Nov. $51 strike, sold 20,000 puts at the Nov. $47 strike, and picked up 10,000 puts at the lower Nov. $43 strike, all for a net premium outlay of $0.51 per contract. The strategist, who may or may not be the same party responsible for the larger spread implemented yesterday, may profit at expiration if shares in the XRT drop 4.7% to breach the effective breakeven point on the downside at $50.49. Maximum potential profits of $3.49 per contract pad the investorís wallet in the event that shares in the ETF plunge 11.3% from the current price of $52.99 to settle at $47.00 at expiration. The investor may lose the full $0.51 paid to establish the spread if shares in the XRT settle above $51.00 or below $43.00 at expiration later in the month.

GRMN ñ Garmin, Ltd.
Shares in the maker of portable GPS receivers and accessories rallied better-than-expected third-quarter earnings released ahead of the opening bell this morning. While Garminís net income in the quarter fell versus the same quarter in 2010, the $0.77 a share earned by the company handily beat expectations, on average. Garmin raised estimates for the year, helping shares rise as much as 8.8% to an intraday- and new 52-week high of $37.20. Investors positioning for shares in the name to extend gains in the near term purchased more than 1,350 call options at the Nov. $38 strike for an average premium of $0.34 per contract. Call buyers profit at expiration in a few weeks if shares in Garmin top the average breakeven price of $38.34. The stock last traded above $38.34 in May 2010. Options implied volatility on the stock is down 18.1% at 29.6% as of 11:45 am on the East Coast.

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