Tuesday Options Update: XLF, HIG, MOS & ASML

Financial Select Sector SPDR (XLF) – The financials ETF has experienced a share price decline of approximately 3.5% to $11.83 today. The December contract attracted one bearish investor looking for continued declines in the fund over the next six months. The stress test results are out of the bag and priced into the market, and we continue to observe many pessimistic option traders on financials. A ratio put spread was established through the purchase of 5,000 puts at the December 13 strike price for 2.64 apiece spread against the sale of 10,000 puts at the December 9.0 strike for 82 cents per contract. The net cost of the transaction amounts to 1.00 and yields a maximum potential profit of 3.00 to the investor if shares decline to $9.00 by expiration at the conclusion of 2009. The XLF will need to decline by 24% in order for financials-bear to rake in the full 3.00 premium.

The Hartford Financial Services Group, Inc. (HIG) – The insurance and financial services company has seen its share price slump by more than 5.5% to $15.12 amid broad declines experienced by many of the big financial stocks today. We observed one trader initiate a calendar spread in order to roll a currently out-of-the-money call position forward by one month. The sale of 7,500 calls at the May 16 strike price for a premium of 90 cents apiece was spread against the purchase of 7,500 calls at the June 16 strike for 2.30 per contract. The investor may be defending against a nearby corrective pullback in financials and is looking for shares to resume a rally next month. The investor would not want to see the May 16 calls landing in-the-money by expiration this Friday. The net cost of the spread amounts to 1.40 and yields a breakeven share price of $17.40 at which point the investor is positioned to accrue potentially unlimited gains to the upside. Option implied volatility appears to be on the rise today up to 121% currently from yesterday’s closing reading of 116%.

The Mosaic Company (MOS) – The provider of potash and animal feed has rallied by more than 6.5% to stand at $47.66. The global firm attracted the attention of some bullish investors looking for continued gains in the stock price as well as one trader who established a covered call. The June 55 strike price witnessed the purchase of some 1,800 calls for a premium of 85 cents apiece. Shares would need to breach the breakeven point by climbing 17% to $55.85 by expiration next month in order for investors long of the calls to begin to profit on the position. The September 55 strike price was the target of a covered call by one trader. This individual bought the stock this morning at around $44.40 and simultaneously sold nearly 5,000 calls at the September 55 strike price for a premium of 3.10 apiece. Since the sale was executed, shares of MOS have climbed steadily up to the current share price. The position appears to be working nicely on day one since the trade requires a move up in the shares towards the vicinity of the short call position, which effectively acts as an exit in the event that the calls expire in-the-money at expiration.

ASML Holding NV (ASML) – Shares of the provider of lithography systems for complex integrated circuits have dipped by less than 1% to $19.02. We observed a rash of put-selling this morning on the stock in three separate contracts. The put-shedding began at the June 17.5 strike price where 3,055 lots were sold for a premium of 66 cents apiece. Next the July 17.5 strike was targeted and another 3,055 puts shed yielded a premium of 1.05 per contract. Finally, the October 15 strike price witnessed the sale of 3,500 put options for about 1.00 apiece. The put sales on the stock can potentially be seen as a bullish signal for the stock as the premiums achieved by investor(s) selling the contracts will be retained in full if shares remain above the strike prices described.