Macro Chart Review

SPY daily chart- Trading at the 50 day EMA. 

Macro Chart Review

XLF weekly chart

Trade of the Day: XLF September $15/$16/$17 call butterfly for $0.21

The Trade
A trader set up the XLF September $15/$16/$17 call butterfly, 25,000x50,000 at $0.21.

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.

Follow Up: BAC - Right Now (Bank of America Inc.)

Wanted to take a quick second to do something we don't usually do, which is review a previous post and connect some dots. Today BAC made the move many were anticipating - a break above the declining tops line and a run towards the gap. I'm disappointed to say that despite having stalked this trade, I did not cash in nearly as much as I would have liked. The move off the open was sharp and quick and I would have preferred to buy the early pull back. One axiom we hear a lot is the market moves in the direction that hurts the most people. Quicker moves like this can often be indicative of shorts getting squeezed. The rapid buying and the lack of sellers causes a bit of a panic and that looks like what might have happened today.

Here's a look at how it went down.

I'm not sure BAC is done basing, but it will be very telling of short interest if it gets squeezed into the gap tomorrow. If it does get into the gap, I will most likely be looking to fade the gap fill for a quick trade. Good luck, and remember to stay light and tight.

BAC - Right Now

Here's what I am watching

Baby break of today's opening range (bullish bias but not overwhelming)
Gap up above that could draw price higher
Declining tops line resistance
Divergence in price and MACD over 3 days that makes me wonder if a near term bottom is forming.

Good luck!

A Quick Look at the Charts : BAC (Bank of America) & C (Citigroup Inc.)

Experimenting with posting a few 60 min charts here. Let us know how you do/do not like it...

A quick look at the charts - Bank Of America and Citigroup Inc.

Option Flow Recap Feb 25

Macro / Thematic

XLF - An investor sells 50,000 March 15 puts at a nickel and buys 25,000 June 15 puts at 36 cents. This 1x2 time spread, for a net debit of $0.26, might be rolling out of a hedge from March to a position half the size in June.

GLD - April 138/143 call 1x2 front spread for $.043 debit

Consumer

SLE – An investor sold 62,000 July 18 Calls at $0.49.

PHM – 3500 January 7.5 calls were bought for $1.13. Appears to be a bullish play and a bet that the stock will find a floor, then rally in the months ahead.

F – The June 17 / 20 1x2 calls spread was bought 5,500 by 11,000 times for $0.26.

MED – The April 23 / 26 call spread was bought 1000 times for $1.20. The company is due to release its results early-March.

ARO – 3000 April 25 puts were sold at $1.00

EXPE – 1400 April 20 calls were bought for $1.10.

Energy

HK – An investor sold 37,600 June 19 calls at  $3.71 to close and bought 47,000 June 21 calls for $2.53 to open. It appears to be a rolling up in strikes.

EP – An 1100 contract block of April 18 calls were bought for $1.01 to open.

RRC – Bullish activity today in Range Resources, including, 7200 June 70 calls being bought for $0.45 to open. Over 11k contracts traded in the June 70 strike.  IV was up 2.4%.  1k June/March 52.5 calenders were also bought. 

Industrials / Materials

TIN – 4000 March 25 calls were sold at $0.60

RTN – Bearish activity: 2100 of the March 50 puts were bought to open for $0.67

Tech

ATVI – The May 12 Calls were bought 20,000 times for $0.28 vs 11.10 stock

GLW – 9500 April 24 / May 25 call spread was bought for $0.05 to open. It appears to be a roll of a bullish position from May to April, down one strike.

YHOO – Bullish long term play in Yahoo where 3900 January’13 15 calls were bought for $4.30 to open

Financials

CIM – 23,500 June 4.5 calls were sold at $0.05.

Healthcare

JNJ – 4500 January’13 75 calls were sold at $0.72

AVNR – 4100 June 3.5 calls were sold at $0.45.

*Special thanks to Flotilla Partners, Option Radar, BMO Capital, MEB Options, LiveVolPro, CBOE, Option Monster, and all of the options desks and traders we work with to provide the option flow!

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.

Trade: XLF May $15/$19 long strangle

The Trade

A trader bought 98,889 May $15 puts at $0.19 and bought 91,080 May $19 calls at $0.13 for a debit of $0.32 or $3,062,931. The spread is long delta, and therefore, has a slight bullish bias.

Risk/Reward

As you can see from the risk/reward graph above, the long strangle has limited risk and unlimited profit potential. The max risk for the strangle is the debit. The lower and upper break even underlying price levels are $14.69 and $19.34. Knowing the characteristics of a long strangle, a large move in the underlying helps, an increase in volatility helps, and the passage of time hurts. Long strangles are very risky because in order to be profitable, they need a large move in the underlying.

The lines shown in the chart above are the lower and upper break even underlying prices. At May expiration, if the underlying is in the range shown above, the spread will be profitable. The 52-week range for XLF is a low of 13.29 and a high of 17.15.

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 the financial services, insurance, commercial banks, real estate investment trusts, consumer finance, and real estate management and development.

XLF traded 377,404 contracts today compared to average daily volume of 271,410. The top ten XLF components include JPM, WFC, BAC, GS, MS, BK, USB, AXP, MET, TRV.

*Hat tip to MEB Options for pointing this out to us!

WFC trades 2X its daily average

Wells Fargo (WFC) traded 129,121 options today, 94,688 calls and 34,473 puts vs a daily average of 65,483 options, 37,088 calls and 28,395 puts.  Traders added 844k deltas in the calls and -168k deltas in the puts.

The print that caught my eye was a buyer of 10,000+ in the money March 32 calls this morning.  After these prints hit the tape the stock never looked back.  

There was also a diagonal short calendar spread where a trader sold 2500 of the March 35 calls @ $0.64 and bought 2500 of the Feb 34 calls @ $0.60.  This trade is profitable above $34.17 tomorrow and above $34.73 on expiration day.   This is a professional trade to be long deltas, long gamma, and short vol, for a credit of $0.04.  Here is the risk/reward for tomorrow:

As you can see in the chart below WFC is testing its highs from April of 2010.  This is very interesting when you compare it to the other big banks.  JPM, GS, C, MS, AIG, BAC, USB, PNC and of course XLF are all below their 2010 highs.