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Homebuilders ETF Bull Ditches Massive Call Position in the Nick of Time

Today’s tickers: XHB, XLV, SHW, CSCO, AMR, DD & FRX XHB - SPDR S&P Homebuilders ETF – It looks like one big options player threw in the towel on a massive bullish stance involving XHB call contracts today as shares of the underlying fund surrendered 2% to stand at $17.31 as of 1:00 pm (ET). The investor appears to have purchased roughly 50,000 calls at the January 2011 $22.5 strike for an average premium of $0.60 apiece back on April 22, 2010, when shares of the fund were trading at a volume-weighted average price of $19.04. Just four days after the purchase of the call contracts, the homebuilders fund’s share price touched a new 52-week high of $20.00. With the benefit of hindsight, it’s clear the trader would have been better off ditching the calls back on April 26, 2010. However, it seems the investor decided to sell the calls today – perhaps fearing the fund’s shares are only heading lower – for an average premium of $0.66 apiece to take in average net profits of $0.06 per contract. Again, with our hindsight coming in at a perfect 20/20, the trader made the right decision to sell the calls this morning because shares of the XHB are now down 3.1% to $17.11 as of 1:15 pm (ET), and the calls may now be sold for just $0.57 per contract. Waiting just a couple of hours more to sell the calls today would have resulted in a net loss rather than a net gain to the trader. XLV - Health Care Select Sector SPDR Fund – Shares of the XLV, an exchange-traded fund that tracks the price and yield performance of the Health Care Select Sector of the S&P 500 Index, are trading 0.90% lower at $29.85 as of 12:35 pm (ET). Options traders populating the fund today are mostly placing bearish bets that shares of the underlying fund are set to decline ahead of May expiration. However, there was some notable contrarian activity in May contract calls, as well. Pessimistic players bracing for continued share price erosion picked up roughly 5,400 puts at the now in-the-money May $30 strike for an average premium of $0.56 apiece. Put buyers at this strike price make money if the XLV’s share price slips beneath the average breakeven point to the downside at $29.44 by expiration day. Buying interest continued at the more bearish May $29 strike as…
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