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SPDR S&P Retail ETF (NYSEARCA:XRT) A large bearish put butterfly spread on the retail ETF this afternoon suggests one options strategist is positioning for a pullback in the price of the underlying ahead of May expiration. Shares in the XRT, an exchange-traded fund that tracks the performance of the S&P Select Industry Index, are down 0.20% to stand at $51.87 as of 12:30pm in New York. The pessimistic player traded a total of 80,000 put options on the fund, driving most of the volume generated on the XRT thus far in the session. It looks like the trader picked up 20,000 puts at the May $47 strike at a premium of $0.37 each, sold 40,000 puts at the May $49 strike for a premium of $0.67 apiece, and purchased 20,000 May $51 strike puts at a premium of $1.27 a-pop. The net cost of establishing the put ‘fly amounts to $0.30 per contract and positions the retail-bear to make money in the event that shares in the ETF fall another 2.3% from the current price of $51.87, to breach the upper breakeven price of $50.70 by May expiration day. Maximum potential profits of $1.70 per contract are available to the investor should shares in the fund fall 5.5% to settle at $49.00 at expiration. Enacting this strategy significantly reduces the overall cost of taking a bearish stance on the retail sector, as opposed to buying the May $51 strike puts outright or purchasing a debit put spread, for example. Additionally, the put ‘fly requires relatively smaller downside moves in XRT shares before the position to breaks even than the aforementioned strategies.

Tyson Foods, Inc. (NYSE:TSN) Investors lunched on Tyson call options today with shares in the meat manufacturer rising as much as 2.6% to an intraday high of $19.39. The spike in demand for bullish options on Tyson Foods happened concurrently with a halt in hog-producer Smithfield Foods’ shares earlier today, after Smithfield confirmed it is in talks to jointly acquire the remaining 50% of the biggest European processed meat products company, Campofrio Food Group, of which Smithfield currently owns 37%. Investors hungry for a near-term Tyson Foods rally scooped up more than 2,300 calls at the April $20 strike for an average premium of $0.16 each, and picked up another 1,200 calls at the higher April $21 strike at an average premium of $0.10 apiece. Bulls looked to the May $21 strike as well, buying more than 2,100 calls for an average premium of $0.28 a-pop. Call buyers at this strike stand prepared to make money should the meat maker’s shares surge 9.7% over today’s high of $19.39 to surpass the average breakeven price of $21.28 by May expiration. Investor appetite for options on Tyson helped move the overall reading of options implied volatility up 4.9% to 31.79% just after 1:00pm.

CVS Caremark Corp. (NYSE:CVS) Options traders are building up near-term bullish positions on the pharmacy health care provider today with shares increasing as much as 3.25% earlier in the session to $36.14. Investors hoping to see the price of the underlying extend gains through April expiration next Friday picked up roughly 1,000 calls at the April $36 strike at an average premium of $0.44 apiece, and another 1,700 call options at the higher April $37 strike for an average premium of $0.12 each. Call buyers are building new positions at these strikes, as evidenced by relatively small levels of previously existing open interest at each. Bullish sentiment spread to the May $37 strike where more than 13,300 call options changed hands on open positions of 4,541 contracts. Volume is heaviest at this strike, and it looks like investors purchased around 10,400 of those calls for an average premium of $0.62 per contract. Traders long the calls start making money if shares in CVS rally another 4.1% over today’s high of $36.14 to exceed the average breakeven price of $37.62 by May expiration. The company’s shares have not traded above $37.62 since April 30, 2010.

American Axle & Manufacturing Holdings, Inc. (NYSE:AXL)Bullish investors are picking up call options on the supplier of various parts to the automotive industry this morning with shares in American Axle rising as much as 4.0% to $12.85. Optimism for a near-term rally in shares of AXL, which supplies parts to U.S. auto giants GM and Ford, is in step with some analysts’ bullish expectations for U.S. automakers in light of constrained Japanese auto supply in the aftermath of the May earthquake. More than 7,600 calls changed hands at the April $13 strike in the first half of the session on open interest of 2,548 contracts. It looks like a slight majority of the call options were purchased for an average premium of $0.26 apiece. Call buyers stand prepared to profit in the event that American Axle’s shares rise another 3.2% over today’s high of $12.85 to surpass the average breakeven point on the upside at $13.26 ahead of April expiration next Friday. The increase in demand for call options on AXL lifted the stock’s overall reading of options implied volatility 5.6% to 49.94% just before 11:55am in New York.

Source: Wednesday Options Brief: XRT, TSN, CVS & AXL