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Energy SPDR XLF Busy Options Midday

Your intraday options trading update.

Energy Select Sector SPDR ETF (NYSE: XLE)Options volume on XLE jumped following the opening bell this morning with most of the activity concentrated in April contract puts. It looks like one big player kicked things off in the first 20 minutes of the session by unraveling a massive bear put spread on the fund. Shares in XLE rose sharply today, gaining as much as 1.95% in early afternoon-trade to hit $75.27 by 12:20 pm. The trader responsible for the largest put spread print certainly seems to have a keen sense of timing, initiating the debit put spread near XLE’s top, and taking the spread down this morning ahead of the intraday move higher. The investor appears to have initiated the spread back on February 28, when shares in XLE reached a session-high of $78.69. The big player sat with the trade, watching shares hit fresh highs as uncertainty over turmoil in the Middle East and its effect on the price of oil continued to flourish, until the price of XLE shares started their decline on March 7. The fund’s shares fell 7.2% to today’s low of $73.03 in the 3 weeks since the trade was established, pushing the long-leg of the puts in-the-money. Today, the trader anticipated the bounce higher in XLE shares and ditched the bearish position by selling at least 66,000 in-the-money XLE April 75 Puts for a premium of $2.79 each, and buying the same number of the XLE April 70 Puts at a premium of $1.00 apiece. Given an approximate purchase price on the original spread of around 98 cents per contract on February 28, it looks like the put player walks away with net profits of 81 cents per contract by taking the trade down this morning. The unraveling of the transaction may be a sign this trader believes shares in the XLE are set to rise higher, at least through April expiration.

Toyota Motor Corp. (NYSE: TM) -– The devastating earthquake in Japan spurred options trading in some large Japanese companies as well as on the iShares MSCI Japan Index ETF (NYSE: EWJ), lifting options implied volatility in each as the full impact of the tragedy on the world’s third-largest economy remains clouded. Shares in the world’s biggest automaker are down 2% at $85.72 this afternoon. Toyota and its affiliates reportedly halted production at three factories. Put players are most active in the front month, with more buyers than sellers, although traders appear to be doing both today. Implied volatility on Toyota is up 13.4% at 27.84% just before 1:00 pm in New York. Shares in Tokyo-based Sony Corp. (NYSE: SNE) are lower by 2.8% to arrive at $33.30, with volatility standing 8.1% higher on the session at 30.08%. Puts are more active than calls, with some traders positioned to see the price of the electronics company slide lower. Other investors were seen selling near-term put options at the nearest-to-the-money strike price available in the March and April contracts. Finally, the EWJ, an ETF that tracks the performance of publicly traded securities in the Japanese market, saw demand for near-term puts rise along with implied volatility. Options volume on the ETF remains fairly low, with a total of 11,950 contracts traded on the fund overall as of 1:05 pm. Volatility on the fund is currently up 11.3% at 20.82%.

Medco Health Solutions, Inc. (NYSE: MHS)A long-term bullish strategist dabbled in October contract call and put options on the health care company today, initiating a three-legged transaction to position for MHS to rise ahead of expiration. Shares in MHS are down slightly by 0.05% to stand at $61.42 just after 12:00 pm in New York. It looks like the investor sold 2,500 MHS October 55 Puts to partially offset the cost of buying the 2,500-lot MHS October 65/70 Call Spread, all for a net premium of just 10 cents per contract. The options player starts making money on the trade if shares in MHS rally 6.0% over the current price of $61.42 to surpass the effective breakeven price of $65.10 ahead of October expiration day. Maximum potential profits of $4.90 per contract are available to the three-legged bull if shares in the name jump 14.0% to trade above $70.00 by October expiration. Finally, the sale of around 2,000 MHS October 65 Puts for a hefty premium of $7.28 each appears to be another sign of bullish sentiment on MHS in options-land today. Put sellers at this strike keep the premium if shares in MHS increase 5.8% to trade above $65.00 through expiration in seven months.

Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR)Shares in the drug maker were on the rise earlier today, but reversed course as the morning wore on to stand 1.5% lower on the session at $13.52 as of 11:15 am in New York. Bearish options traders populating the July contract appear to be positioning for the price of the underlying to continue its downward trajectory. The stock reached a 52-week high of $16.67 during the first trading week of 2011, but fell as much as 27.05% off the high to touch its year-to-date low of $12.16 on February 24. Questcor’s shares seemed to be on the mend since then, rallying up to a high of $14.10 today. However, options traders are signaling that QCOR’s shares may fall substantially in the months to come. More than 3,400 in-the-money QCOR July 14 Puts traded this morning on open interest of just 403 contracts. It looks like over 2,800 of those were purchased for an average premium of $2.34 a-pop. Put buyers profit in the event that the drug maker’s shares drop 13.8% off the current price of $13.52 to breach the average breakeven point to the downside at $11.66 by July expiration day. Questcor is slated to report first-quarter earnings after the closing bell on April 28.

Andrew Wilkinson is senior market analyst with Interactive Brokers, the professional’s gateway to the world’s markets.

Article printed from InvestorPlace Media, https://investorplace.com/2011/03/energy-spdr-xlf-medco-show-options-action-midday-tm-xle-qcor-mhs/.

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