The Wall Street Journal-20080124-Financials in High Demand- But Traders Keep Hedges
Return to: The_Wall_Street_Journal-20080124
Financials in High Demand, But Traders Keep Hedges
Options traders speculated that financial stocks would continue the recent snapback rally, but kept hedges in place.
Just as banks and lenders led the stock market down to near bear territory in a selloff that has lasted since the summer, they will be among the strongest in any recovery, strategists said.
"People believe we need the financials in order to lead us back," said Joe Kinahan, chief derivatives strategist at thinkorswim.
Demand for February call options on the Financial Select Sector SPDR Fund, or XLF, an exchange-traded fund that is a basket of banks and lenders, were in high demand, particularly at the strike price of $29. Way out of the money when the session started, those calls were more rational investments by the close, as the share-price of the fund rose 7.1% to $27.90.
Overall, about 363,000 calls on the XLF changed hands, compared with about 304,000 puts, according to TrackData.
Not all the activity was bullish, and some traders were actively selling those February $29 calls, said Rebecca Engmann Darst, equity- options analyst at Interactive Brokers, in a note. Those traders preferred to pocket the increased premium than take the chance that the ETF would rise above the strike price by expiration, she said.
Another way to hedge bullish financial bets yesterday was loading up on calls related to the Chicago Board Exchange Volatility Index -- the so-called fear gauge, which has something of an inverse relationship to the stock market.
The ever-ornery options market picked an interesting time to warm to chip maker Intel. Shares of Intel were major contributors to the Nasdaq's precipitous slide, and are still off about 25%.About 108,000 call options traded on Intel, compared with 63,000 put options.
A major trade was likely a "calendar spread," Mr. Kinahan said, or selling $20 February calls and buying March $20 calls simultaneously. That is a bet that Intel will stay near the $20 level until the February expiration.
