Thursday Options Brief: XLF, LVS & AVNR

 |  Includes: AVNR, LVS, XLF
by: Interactive Brokers

Financial Select Sector SPDR (NYSEARCA:XLF)Bearish sentiment on the XLF, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, appeared in the first 30 minutes of the trading session as one pessimistic options player purchased a put butterfly spread in the July contract. Shares of the fund commenced the session slightly higher than Wednesday’s close, but surrendered the morning’s gains ahead of 11:00 am (ET) to trade flat at $14.82. The bearish investor purchased 20,000 puts at the July $15 strike for a premium of $0.78 apiece [wing 1] and picked up another 20,000 puts at the lower July $13 strike for a premium of $0.24 each [wing 2]. Finally, the body of the butterfly involved the sale of 40,000 puts at the July $14 strike for a premium of $0.43 a-pop. The net cost of enacting the butterfly spread amounts to just $0.16 per contract and represents the maximum loss potential faced by the investor. The spread trader stands ready to accrue maximum potential profits of $0.84 per contract should shares of the underlying fund decline 5.5% from the current price of $14.82 to settle at $14.00 at expiration next month. Shares of the XLF must slip beneath the upper breakeven price of $14.84 before the investor starts to make money. The transaction is a very efficient way for the trader to establish a pessimistic viewpoint on the ETF because the maximum potential loss of $0.16 per contract pales in comparison to maximum potential profits of $0.84 apiece. The reward-to-risk ratio in this case is greater than 5-to-1.

Las Vegas Sands Corp. (NYSE:LVS)The owner and operator of gambling resorts around the world enticed early-bird bullish investors to the options field today after analysts at Morgan Stanley upgraded LVS to ‘overweight’ and upped their target share price on the stock to $29.00. Las Vegas Sands’ shares rallied during Wednesday’s session on news its Singapore resort is set to surpass analysts’ cash-flow projections this year. Shares of the underlying stock continued higher this morning, rallying more than 3.50% to $25.10 as of 11:05 am (ET), to stand $1.47 below LVS’s current 52-week high of $26.57 attained back on April 26, 2010. Investors hoping to see shares blow through the current 52-week high by June expiration purchased out-of-the-money call options. Traders picked up roughly 2,700 calls at the June $26 strike for an average premium of $0.59 apiece. Call-buyers at this strike price make money if, by expiration, shares of the casino company exceed $26.59. Optimism spread to the higher June $27 strike where investors coveted some 6,500 call options at an average premium of $0.34 per contract. Las Vegas Sands’ shares must rally at least 8.9% from the current price of $25.10 in order for June $27 strike call buyers to start to accrue profits above the average breakeven price of $27.34.

Avanir Pharmaceuticals, Inc. (NASDAQ:AVNR)Shares of the biopharmaceutical company engaged in acquiring, developing and commercializing therapeutic products for the treatment of central nervous system disorders are up more than 5.15% this morning to stand at $2.65 as of 10:55 am (ET). The AVNR ticker symbol popped onto our ‘hot by options volume’ market scanner after one options investor initiated a bullish stance on the stock. It appears the optimistic individual sold 2,500 puts outright at the July $2.5 strike to take in an average premium of $0.26 per contract. The investor keeps the full premium received as long as shares of the underlying stock trade above $2.50 through July expiration. The short sale of puts implies the trader is happy to have shares of the Abreva maker put to him at an effective price of $2.24 each should the puts land in-the-money at expiration next month.