- Investors reached for protection from further losses in the financials:
XLF – Financial Select Sector SPDR – A large bearish spread in the June 2010 contract suggests one investor feels the need for downside protection through expiration. Shares are slightly up this afternoon by about 0.25% to $14.09. The trader purchased 20,000 put options at the June 14 strike for an average premium of 1.91 apiece. He financed the long position by selling 20,000 puts at the June 11 strike for 74 cents each, and by selling another 20,000 puts at the lower June 10 strike for 51 cents premium. The net cost of the transaction amounts to 66 cents per contract. The investor responsible for the three-legged spread is possibly holding a long stock position in the XLF. The put options might then serve to protect the value of the position in the event that shares decline beneath the effective breakeven point at $13.34 by expiration. The fact that the trader is short two times as many puts indicates this investor expects a pullback but not a collapse beneath the lower strike price of $10.00.
- One large investor is looking for limited upside in emerging markets:
EEM – iShares MSCI Emerging Markets Index ETF – A large-volume credit spread was initiated in the January 2010 contract today by an investor expecting limited upward movement in the price of the exchange-traded fund through expiration. Shares are currently trading 2% higher to $38.37. The trader appears to have sold 51,700 calls at the January 43 strike for a premium of 75 cents apiece, and simultaneously purchased the same number of calls at the higher January 47 strike for 17 pennies each. The net credit received on the trade amounts to 58 cents per contract. The investor retains the full credit, which amounts to a grand total of $2,998,600.00, as long as shares of the EEM remain below $43.00 through expiration day. The credit-spread seems like a good money-making strategy especially because shares of the fund have remained below $43.00 since August 1, 2008.
- Stanley Works is buying Black & Decker for $4.5B in an all stock deal. BDK shares are up 22% after hours.
- Citi upgraded shares of Credit Suisse to a buy.
- Deutsche Bank upgraded Nordstroms to a buy with a $45 price target.
- Citi cut Research In Motion shares to a sell with a $50 price target.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.