Monday Options Brief: EBAY, XLB & XLI

Includes: EBAY, XLB, XLI
by: Interactive Brokers

EBAY - eBay, Inc. - Equities are moving broadly lower today as Spain's borrowing costs spike, heightening concerns over Europe's debt crisis. Shares in eBay, which rallied to a fresh six-year high last week on the heels of better-than-expected earnings and a number of analyst upgrades, surrendered 3.4% this morning to trade at $43.34 as of 11:45 a.m. in New York. Put activity on the operator of online marketplaces and electronic payments systems, PayPal, suggests some traders are bracing for further declines in the near term. Upwards of 5,900 puts changed hands at the Aug. $43 strike this morning versus open interest of 2,887 contracts. It looks like most of the puts were purchased for an average premium of $1.48 apiece, thus providing buyers with profits - or downside protection - beneath the average breakeven price of $41.52 through expiration next month.

XLB - Materials Select Sector SPDR - Materials stocks are among the worst performers on a down day for the market, with shares in the XLB down 2.2% at $34.64 as of 12:30 p.m. on the East Coast. A large block of put options purchased on the fund this morning suggests that materials may continue to decline in the next couple of months. All thirty stocks in the fund are in the red today, with Freeport-McMoRan, the fifth-largest holding and 7.61% of the total, down 4.3% on the day at $32.31. It looks like one big options market participant purchased more than 33,000 puts at the Sept. $30 strike for a premium of $0.30 apiece. Open interest in the Sept. $30 strike put exceeds 28,000 contracts, with the bulk of the existing put positions purchased back on July 10th for a premium of $0.41 each. Bearish positioning in the Sept. $30 put looks for the price of the underlying fund to sustain a more than 14% move to the downside within the next nine weeks to expiration.

XLI - Industrials Select Sector SPDR - Interestingly, the large put purchase on the XLB this morning (refer to note above) was initiated within seconds of a similar transaction in the Industrials Select Sector SPDR ETF. Shares in the XLI are down less than the Materials ETF at present, trading lower by 0.90% at $34.84 in early-afternoon trade. A block of 38,000 put options were purchased at the Sept. $30 strike for a premium of $0.26 each ten seconds prior to the sizable put play in the XLB. Open interest in the Sept. $30 put contracts on the XLI - similar to previously existing positions in the XLB Sept. $30 put - is the result of activity on July 10th. It appears most of the open positions in the XLI puts were purchased in a block of 29,000 contracts at a premium of $0.34 apiece back on the 10th. Growing interest in the Sept. $30 put suggests shares in the fund may suffer a near 15% pullback ahead of expiration.