Thursday Options Update: DAL, XLF, XHB & CROX

Includes: CROX, DAL, XHB, XLF
by: Interactive Brokers

Delta Air Lines, Inc. (NYSE:DAL) – Bearish option traders bombarded Delta with pessimistic strategies today after the firm stated total December traffic declines 7.5% versus the same time in the previous year. Despite the decline in traffic, shares of the U.S. carrier are up nearly 6% to $12.82, perhaps because ‘load factor’ – or the percentage of available seats filled with passengers – increased 0.4% last month to 81.2%. Option traders populating the March contract on the stock are wary of a pull-back in shares in the next several months. One investor established a large-volume put spread by purchasing 25,000 puts at the March $11 strike for $0.70 each, spread against the sale of 25,000 puts at the lower March $9 strike for $0.20 apiece. The net cost of the bearish play amounts to $0.50 per contract and establishes downside protection for the trader should shares slip beneath the breakeven price of $10.50 by expiration. Call-selling by other investors suggests the current state of shares is as good as it’s going to get. Option traders sold 7,100 calls at the March $13 strike for an average premium of $1.10 per contract, perhaps taking the premium available today in case Delta shares descend in the near-term.

Financial Select Sector SPDR ETF (NYSEARCA:XLF) – Option volume on the financial exchange-traded fund burst as investors ramped up bullish positions to prepare for potential upward momentum in the price of the underlying. Shares of the XLF rallied 2% to $15.29 during the session. One investor, holding a monster-sized portion of calls in the January contract, elected to take profits by selling the contracts and reestablished a fresh chunk of calls in the February contract. It is likely the trader originally purchased about 154,000 calls at the January $15 strike for an average of $0.16 per contract back on December 22, 2009. Today it looks like the investor banked average profits of $0.07 per contract by selling the 154,000 calls for $0.23 apiece. Expecting continued bullish momentum, the trader then purchased roughly 154,000 fresh calls at the higher February $16 strike for $0.17 per contract. The trader breaks even on the new call position if shares of the XLF rally 5.75% from the current price to $16.17 by expiration next month. Finally, a more cautious individual picked up a large chunk of put options in the June contract. The investor bought 52,500 puts at the June $13 strike for $0.47 per contract. Perhaps this trader is long the stock and picking up medium-term downside protection on the position in order to hedge against potential declines in the price of the fund in the next six months to expiration.

SPDR S&P Homebuilders ETF (NYSEARCA:XHB) – Option traders displayed mixed sentiment on the homebuilders ETF today. Some investors made bullish moves, which seem to be in line with the 3.5% rally in shares of the underlying to $16.05. One optimist initiated a call spread by purchasing 2,000 calls at the now in-the-money February $16 strike for $0.70 each, marked against the sale of 2,000 calls at the higher February $17 strike for an average of $0.28 apiece. The trader paid a net premium of $0.42 per contract for the spread. He stands ready to accrue maximum potential profits of $0.58 each if shares of the XHB rally up to $17.00 by expiration. Pessimistic traders, who do not expect XHB’s shares to surpass $17.00, sold 12,400 calls at the February $17 strike for a premium of $0.24 per contract. Short sellers retain the full $0.24 premium on the trade if shares of the fund trade beneath $17.00 through expiration next month.

Crocs, Inc. (NASDAQ:CROX) – Bullish traders tried a pair of Crocs on for size and apparently loved the way over-sized clogs fit. Shares of the casual footwear manufacturer rallied 5.25% to $6.61 today, inspiring a call-option feeding frenzy. Near-term CROX-lovers bought roughly 10,000 calls at the now in-the-money January $6 strike for an average premium of $0.53 per contract. Optimism spread to the in-the-money February $6 strike where another 2,000 calls were coveted for $0.85 apiece. February contract call-buyers profit if CROX’s shares rise above $6.85 by expiration next month.