XLU (S&P Utilities) - Bearish Bets Mount in Sep

Discussion in 'Options' started by livevol_ophir, Aug 4, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    XLU (S&P Utilities) is trading $30.71 with IV30&#8482 up 3.7%.

    <img src="http://2.bp.blogspot.com/_hMry1m7UF10/TFmsx0ujHAI/AAAAAAAAD5g/NYyd3mcpy9Q/s1600/xlu_summary.gif">

    The ETF has traded over 52,000 options on total daily average option volume of just 13,877. All but 2,536 contracts have been puts. The largest trade has been a Sep 28/30 put spread bought for $0.41 12,000x. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/08/xlu.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/08/xlu.html">in the article</a>) illustrates that the puts have traded more than OI. It looks like the Sep 28 OI is short with more selling today and the Sep 30 puts have long OI with more buying today. That's my best guess.

    <b>Trade Stats</b>
    Buy 12,000 Sep 30 puts for $0.54
    Sell 12,000 Sep 28 puts @ $0.13
    Pretty simple downside bet on XLU MaxGain:MaxLoss is $1.59:$0.41 or nearly 4:1.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/08/xlu.html">in the article</a>) illustrates the vols by strike by month.

    A pretty normal looking skew. Note the overall low vol in this ETF; it's ~19 vol in Sep.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/08/xlu.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    Other than the day of the "flash crash," the ETF really doesn't move a whole lot. The IV30&#8482 is just slightly below the HV20&#8482, but for the last couple of months, the two have tracked each other pretty well.

    The 52 wk. range for XLU is [$25.76,$32.08]. It seems that a sale of the Dec 20 puts @ $0.10 could offset the cost a bit of this trade. For a $0.31 debit, this could be an interesting put spread if you want to get short the Utilities. Another alternative, a bit more risky, could be to sell two Sep 28 puts for each long Sep 30 put. That makes the total debit $0.28 and is safe down to $26.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here: