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Financials take a shot of insulin

Today’s tickers: XLF, GS, VIX, CX & T XLF – Financial Select Sector SPDR – Shares in this financial portfolio are off to the races this morning and stand 10.5% higher at $10.10. Heavy option activity doesn’t confirm the relief with which investors have greeted the so-called “bad bank” plan, which would help remove the bind of lending due to toxic assets clogging up financial companies’ balance sheets. Within the 81,000 call volume at the February 10 strike, where average premium was 74 cents today, 45,000 calls were sold while 26,000 were marked as bought. At the March 12 strike call, which saw most volume in that contract, more call volume appears to have been initiated by sellers where premium of 38 cents was achieved. In the February puts, it appears that a 19,000 lot put spread was traded accounting for most of the volume at the 8.0 and 9.0 strikes. In this trade, which we can’t tell was an opening or closing transaction, the investor sold premium of 32 cents at the upper strike in exchange for the payout of 16 cents at the lower strike. This could be simply a credit put spread aimed at taking the net 16 cents in the event that financial shares stay afloat, or it could be the closing side of a trade in which the buyer has now lost confidence. Implied volatility on the XLF dropped to 77.9% today. GS – Goldman Sachs Group Inc. – Shares of GS are up nearly 10% to $85.93 this morning and bullish options investors are piling into the call side looking for upside exposure. Some have looked to the February contract, initiating a call spread at the 85.0 and 95.0 strikes, while others have stretched their optimism into the March contract. One investor appears to have purchased 5,800 lots for 2.35 at the March 100 strike. If shares of GS can rally through $100.00, profits will be realized at a breakeven of $102.35 and beyond. Options implied volatility is off by around 10% at 69% today. VIX – CBOE Volatility Index – The S&P’s fear gauge is lower but holding steady at the 40 handle after the coverage of the bad bank plan. That’s a daily decline of 4% as investors consider whether or not the news will come to fruition and more importantly whether the plan might provide a lasting solution for the broken economy. One option trader appeared to…
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