Today’s tickers: XLE, LIZ, NE & CBST
XLE – Energy Select Sector SPDR Fund – Two massive transactions in XLE options today suggest nearer-term pessimism on the energy sector and longer-term optimism. Shares in the fund started the session in positive territory, but the rally proved to be short-lived as shares are currently trading 0.60% lower on the day at $73.72 just before 12:50pm. The XLE, an exchange-traded fund that corresponds to the performance of the Energy Select Sector of the S&P 500 Index, jumped to the top of our ‘most active by options volume’ market scanner this morning after a huge bull call spread was purchased outright in the September contract. The transaction is a profitable one if shares in the XLE top recent highs to trade at levels not seen since mid-2008. The options player purchased 52,750 calls at the September $79 strike for a premium of $2.23 each, and sold the same number of calls up at the September $90 strike at a premium of $0.28 apiece. Net premium paid to initiate the spread amounts to $1.95 per contract, a price tag of more than $10.28 million. Profits are available to the trader should shares in the fund surge 9.8% over the current price of $73.72 to exceed the effective breakeven point at $80.95 by September expiration. Maximum potential profits implied by the spread’s parameters amount to $9.05 per contract if the price of the underlying fund jumps 22.1% in the next four months to trade above $90.00 at expiration. Meanwhile, a large put spread purchased in the nearer-term June ‘30 expiry suggests a less rosy outlook on the energy sector over the next seven weeks. The spread was likely purchased by the investor, although direction in this case is more difficult to determine as both legs of the transaction traded to the middle of the market. The pessimistic player appears to have purchased 33,330 in-the-money puts at the June $75 strike for a premium of $3.27 each, against the sale of the same number of put options at the lower June $65 strike at a premium of $0.52 a-pop. The net cost of the spread amounts to $2.75 per contract, thus yielding profits below…
