Big Printin’ – XLF, XLK – All My X’s

by riskreversal November 15, 2016 11:26 am • Big Printin'

Here is some apparently untied directional options trades that caught our attention in this morning’s trading:

XLF: The financial select etf saw sizable opening call buying right out of the gate. When the etf was trading $21.81 shortly after the open, 110,000 March 23 calls ere bought up to 51 cents. Not fifteen minutes later a block of 115,000 of the same strike were bought to open for 56 cents, five cents higher than the prior print, despite the stock only being up 5 cents from the prior print. For those of you doing math at home, these calls have about a 35 delta, meaning for every dollar movement in the near term of the XLF the calls should move by 35 cents.

The new found enthusiasm towards bank stock with the hope of a higher rate environment and the prospect of decreased regulation, possibly the roll back of Dodd-Frank, all investors can see are the pre-crisis level highs!! Have at it peeps!

[caption id="attachment_68165" align="aligncenter" width="600"]XLF 10 yr chart from Bloomberg XLF 10 yr chart from Bloomberg[/caption]

XLK: mega-cap tech stocks have sorely under-performed the broad market since last Tuesday’s close as investors rotate into laggards or sectors thought to have a more favorable relationship with the in coming Trump administration.  About an hour after the open when the Technology Select etf was trading $46.68, there was an opening buyer of 45,000 of the Jan 43/40 put spreads paying 24 cents to open. This trade breaks-even at $42.76, down about 8.5% from the trading level.  While this put spread is dollar cheap, it is not really a great bearish bet, as the options market is only placing about an 18% probability that the 43 puts will be in the money. For our money in Jan, the 46/40 put spread looks to target some pretty good downside levels:

[caption id="attachment_68166" align="aligncenter" width="600"]XLK 1yr chart from Bloomberg XLK 1yr chart from Bloomberg[/caption]