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Strangling Out Premium

With the S&P 500 churning in this no-man’s land between 1115 and 1125 implied volatility, as measured by the VIX has held steady possibly as traders keep bids on the index options ahead of tomorrow’s jobs data. But a look at individual issues show’s a different story as some of the largest option transactions involve the selling of option premium by establishing short strangle and straddle positions. These strategies benefit if the underlying stock remains within a narrow range and volatility remains steady or contracts. 
One of the largest premium sales occurred in Applied Material (NASDAQ:AMAT) where the July $12 puts and $13 calls each traded 30,000 as someone sold that for a $1.46 net credit or a total of $4.38 million. Other names seeing the selling of option premium include Xerox (NYSE:XRX), in which the July $10 straddle went 25,000 times at $1.50 and in Hertz (NYSE:HTZ) in which the September $10 straddle 27,000 contracts for $2.70 net credit or a whopping $7.2 million of total premium collected. One would assume these transactions are in combination prior or existing positions.
Healthcare and insurance stocks are under pressure today which is leading to active put trading. One notable large trade occurred in Cigna (NYSE:CI) as April $30-$33 put spread traded 24,000 times for a cost 80 cents to gain some downside protection.
Spyder Retail (NYSEARCA:XRT) are hitting a new 52-week high of after some generally positive retail sales numbers. Shares of the exchange traded fund had broken out of a trading range when they cleared the $36.80 level last week and have added another 70c to $38.70 today. One strategist thinks there is more upside and has rolled out of the March $39 calls and into April to extend the time frame of the bullish position. 

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