Friday, April 29, 2011

Trade of the Day: XLF July $14/$15 put front spread

The Trade
A trader sold 100,000 July $14 puts at $0.06 and bought 50,000 July $15 puts at $0.14 for a debit of 0.02 or $100,000.

As you can see from the graph above, the spread profits the most from a decrease in the underlying stock before July expiration. The max profit occurs at an underlying stock price of $14 at expiration. The max profit is $4,900,000. XLF is currently trading at $16.37. The break even point is $14.98. The spread has unlimited risk to zero because of being short more puts than long.

The chart shown above is the XLF daily stock chart. The white line shown is the break even price. The blue line shows the 200-day moving average. The XLF last traded below the break even price level on December 3rd, 2010. The 52-week range for XLF is a low of $13.29 and a high of $17.20. XLF trades an average of 224,580 contracts per day.

The XLF seeks to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index. The Index includes companies from industries, such as diversified financial services, insurance, commercial banks, capital markets, real estate investment trusts, consumer finance, thrifts and mortgage finance, and real estate management and development.

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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