SameerR

Options Trader Friday Update: GE, TGT, XLI, CBST, HAL, DELL, XRT, CAL, JAVA

WhatsTrading.com has information on the XRT butterfly this morning which is quite contrary to your take:

SPDR Retail Trust (XRT) is an exchange-traded fund [ETF] that holds shares in more than 50 different retailers. The ETF has performed well over the past few weeks amid renewed hopes for the economy, consumer spending, and retail sales. It is up 33.5 percent since March 9 and sits unchanged at $24.39 today.
In the options market, XRT May 20 puts are the day’s most actively traded ETF contract Friday. 40,000 traded after a strategist apparently opened a substantial spread: selling the May 20 puts while buying 20,000 May 22 puts and 20,000 May 18 puts. The spread is called a “butterfly”: with the 20s creating the body of the fly and the 18s and 22s making the wings.
They sold the body for 40 cents per contract and bought the wings for 78 and 20 cents. Therefore, they pay a debit of 18 cents (78 + 20 - 40 - 40). The potential pay-off is $1.82 (excluding commissions) if XRT settles for $20 per share at the May expiration (42 days) and the range of profitability is between $18.18 and $21.82. If XRT falls into that range by May options expiration, the spread makes money.
While the spread is possibly a hedge, it is noteworthy due to its size. 40,000 puts controls 4 million shares of the exchange-traded fund and therefore the trade falls into the “smart money” camp that we often track and sometimes trade. In additoin, the risk reward is considerable. Excluding commissions, the strategist is risking 18 cents to make $1.82, a ratio of 1:10. It might seem like a crap shoot, but keep in mind, XRT was trading around $20 as recently as March 11.

Ultrashorts: A Good Way to Profit from Volatility (Part 2)

I completely agree

I use this same strategy all the time and its a great way to leverage yourself with the best risk/reward possible!

Wednesday's Options Recap

and that cash is sitting on the sidelines for a Reason..

doesnt have to be risked into the market, if it would have came in, they would have jumped on the opportunity immediately

from last october we'd had lower consecutive highs with each support hitting dow's 8000-or-so level and s&p's 800..eventually that floor WILL give, because of the fact of very unsustainable upside..

think about it

Wednesday's Options Recap

mruyog--

i believe you have this entire market wrong buddy..yeah--you may get multi-day rallies (which is not healthy given the high levels of short covering)--

but given the news flow of the recent 4-day rally we had on lighter consecutive volume--i believe you are buying into the media about how this entire plan was suppose to be the "cure-all"

if you dont remember--we are still in a BEAR market until all hope has been entirely washed out

the market is still expensive on a fundamental basis given PE and EPS and whatnot, and will be for some time til this mess gets sorted out, which is not overnight

if you have a long-term horizon such as 5 years--go ahead and buy, but i believe you are bottom-picking and can guarantee you will lose money short-intermediate term

as long as were getting drastic selloffs like yesterday, this market can not be trusted on the upside

One Day Away from Retesting 52-Week Lows

That type of wide consensus that we're going back to the lows TODAY after falling 1100 points 8 days in a row..easy way to trap in shorts given the wide spread bad news in the media..this rally will have legs and will have people chasing back to the upside

then I think it would be a wise idea to begin scale shorting..not after where we just came from and the mood possibly can't get gloomier..not a good idea to short after how much we just came off the relative highs.. easiest way to get hurt

-my 2 cents (or less)

Market Indexes' Indecision

possible failed reversed head and shoulders?

i mean, we did go up on light volume which i'm sure people will sell into

Option Ratios Urge Cautious Investing

I completely agree.. ! I believe the expectations for a first-quarter rally are stretching a bit too far and that will end up being our fuel on the downside..

another note: I've noted a hefty amount of downside deep out-of-the-money puts on the spy (s&p spdrs) being bought on the front-month contracts over the course of a week..possibly accumulation due to low relative probability--just another clue of things yet to be seen