The Wall Street Journal-20080215-Bearish Traders Hedge Bets As Financial Worries Return

Return to: The_Wall_Street_Journal-20080215

Bearish Traders Hedge Bets As Financial Worries Return

Full Text (283  words)

With February options on the verge of expiry, traders soured on the financial sector again let bearish-to-neutral positions on the stock market ride into March.

Shares of the Financial Select Sector SPDR, or XLF, an exchange- traded fund that is a basket of banks and lenders, fell 74 cents, or 2.7%, to $26.41. Action was bearish, with 236,174 puts trading versus 91,725 calls, according to TrackData.

"The financials had been some of the best performers over the last two weeks" as the market reflected hopes the worst of the credit crisis was priced in, said Jeff Shaw, head trader at Timber Hill, a unit of Interactive Brokers.

Mr. Shaw noted increased demand recently for out-of-the-money put options such as the March $25 puts, about 13,900 of which traded yesterday, and the June $24 and $25 puts.

In the news, Swiss bank UBS AG reported a roughly $11 billion fourth-quarter loss, reflecting a write-down related to subprime mortgages. Moody's Investors Service cut FGIC Corp.'s important triple-A ratings.

Puts expiring at the end of the week priced in a one-in-four chance that the fund will drop below $26 today, said Rebecca Engmann Darst, equity-options analyst at Interactive Brokers.

The financial and credit worries hastened hedging in the broad market: the SPDR S&P 500 exchange-traded fund, or SPY, mirrors the Standard & Poor's Composite Index of 500 stocks, representing in dollars roughly one-tenth the point value of the broad market index. On the stock market, the fund closed at $135.17 as the S&P 500 ended at 1348.86.

Options trading on the ETF bustled in out-of-the-money calls expiring in February and March. About 33,500 February 139 calls changed hands and about 61,700 March 140 calls were traded.