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SPDR S&P Homebuilders ETF (XHB) – 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.

Health Care Select Sector SPDR Fund (XLB) – 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 traders purchased about 5,000 puts for an average premium of $0.24 per contract. Investors long the puts stand ready to amass profits if shares of the health care fund decline another 3.65% from the current value to breach the average breakeven point on the puts at $28.76 by May expiration. Put options were definitely favored over calls on the XLV today, but there was some call action initiated by early-morning optimists positioning for a potential rebound in the fund’s share price by expiration this month. Roughly 4,700 calls were coveted at the May $30 strike for an average premium of $0.56 apiece in the first 30 minutes of the trading session. Call-buyers profit only if shares of the health care ETF rally 2.4% from the current price of $29.85 to surpass the average breakeven point to the upside at $30.56 by expiration day. Buying interest in both call and put options fits with the 15.4% increase in the overall reading of options implied volatility on the XLV to 23.27% today.

Sherwin-Williams Co. (SHW) – Earlier in the trading session Sherwin-Williams’ shares rallied 2.20% to an intraday high of $78.02 inspiring long-term bullish options activity on the paint and painting accessories producer. However, the wear-and-tear of a down day for the broader market weighed heavily on SHW, pulling its share price into the red by 0.20% to stand down at $76.19 as of 12:50 pm (ET). Options optimists sold approximately 11,500 puts at the January 2011 $65 strike for an average premium of $2.77 per contract. Activity in January 2011 $65 strike puts is all fresh given previously existing open interest at that strike of just 827 contracts. Put-sellers keep the full $2.27 premium pocketed on the trade as long as shares of the underlying stock exceed $65.00 through expiration day in January. Short sellers bear the risk of having SHW-shares put to them at an effective price of $62.23 each in the event that the put options land in-the-money at expiration. But, shares would need to plummet 14.7% from the current value of $76.19 in order to breach the $65.00-level to push the options in-the-money.

Cisco Systems, Inc. (CSCO) – Put activity on Cisco Systems today suggests there are some very pessimistic options players positioning for continued share price erosion on the stock through June expiration. Shares of the switches and routers manufacturer are down 2.2% to $24.93 as of 12:30 pm ET. It looks like roughly 3,600 puts were picked up at the June $22 strike for an average premium of $0.22 per contract. Plain-vanilla put buyers make money if shares of the underlying stock fall 12.6% from the current price to breach the average breakeven point on the puts at $21.78 by June expiration day.

AMR Corp. (AMR) One optimistic options investor purchased a plain-vanilla debit call spread on the parent company of American Airlines today indicating shares of the underlying stock are likely to rebound by August expiration. AMR’s shares are down this morning along with the broader market, trading 3.10% lower at $6.54, as of 10:45 am (ET). The bullish trader is likely taking advantage cheaper call premium today stemming in part from the 13.95% decline in share price experienced by AMR since Monday when the stock reached an intraday high of $7.60. The options player purchased 6,000 calls at the August $7.0 strike for a premium of $1.11 each, and sold the same number of calls at the higher August $9.0 strike for a premium of $0.37 apiece. The net cost of the transaction amounts to $0.74 per contract, thus yielding maximum potential profits of $1.26 per contract to the investor should AMR’s share price surge 37.6% over the current value of $6.54 to exceed $9.00 by expiration day in August. Options implied volatility on AMR Corp. is up 11.9% to 78.81% just ahead of 10:50 am (ET).

EI DuPont de Nemours & Co. (DD) Shares of the global supplier of a variety of commodity chemicals are down 1.15% to $36.26 in morning trading. One bearish individual populating the options field on DD booked profits on a previously established long put position, and subsequently increased pessimistic sentiment on the stock by picking up a fresh chunk of calls at a lower strike price. The trader originally purchased 5,200 puts at the July $38 strike for a premium of $1.81 each on Tuesday April 4, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $38.92 each. The decline in share price over the past few days inflated premium on the now in-the-money puts, allowing the trader to sell all 5,200 contracts for a premium of $3.11 each this morning. Net profits pocketed on the transaction amount to $1.30 apiece. Next, the investor targeted the lower and nearer-term June $36 strike to pick up a fresh batch of 5,200 puts for a premium of $1.76 per contract. The more bearish stance initiated on the stock suggests the investor is bracing for continued share price erosion through June expiration. Profits on the new position accumulate should DD’s shares slip beneath the effective breakeven price of $34.24 ahead of expiration day. Options implied volatility is soaring 15.6% higher to 41.15% as of 10:58 am (ET).

Forest Laboratories, Inc. (FRX) Near-term bullish options investors engaged in plain-vanilla call buying on the pharmaceuticals company this morning with shares of the underlying stock trading 1.30% higher on the day at $26.58. Trading traffic centered at the May $27.5 strike where approximately 6,400 calls were purchased for an average premium of $0.47 apiece. Investors long the calls make money if Forest’s shares rally another 5.25% to surpass the average breakeven price of $27.97 by expiration day in May. Options implied volatility is up sharply by 24.5% to 40.86% as of 11:07 am (ET).

Source: Friday Options Brief: XHB, XLB, SHW, CSCO, AMR, DD, FRX