WEALTH UNIVERSITY

[777Cowboy]

Although I'm bearish on the market since last Friday, and took a large position if SRS. I find this XLF article quite interesting. I planned on covering SRS wednesday AM and going long FAS at some point. The futures are down big tonight, very light volume in the market, and the trend with light volume would be down. This XLF article did raise some eyebrows. It's hard to block the pundits out, I guess I'm conflicted again. Heres the story...

...Financial ETF draws bullish stock and option combination trade
Tue Apr 7, 2009 6:45pm EDT Email | Print | Share | Reprints | Single Page [-] Text [+]
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By Doris Frankel

CHICAGO, April 7 (Reuters) - The Financial Select Sector SPDR exchange-traded fund XLF.P appears to have attracted a huge bullish stock and option combination trade during the last few minutes of Tuesday's session, according to one trader.

The trade involved the purchase of 100,000 May $8 XLF puts and the purchase of XLF stock at almost the same time, in what professional traders call a synthetic call option, said Jon Najarian, a founder of Web information site optionMonster.com.

In the last few minutes of trade, two huge blocks of May $8 XLF put options of 50,000 contracts were each bought for a premium of 43 cents a contract on the Chicago Board Options Exchange as the ETF shares fell, he said.

The XLF dropped 3.18 percent to $9.13.

The put trade represented 10 million shares of stock. The exact number of shares bought in the ETF was not available.

The fund's shares would have to rise to $9.58 by May expiration in order to break even on the trade.

The strategy enables the investor to take a substantial bullish position in the XLF and could be same as buying a May $8 XLF call option, which gives the right to buy the fund's shares at $8 apiece.

"This trader is expecting a resumption of the recent rally in the financial sector," Najarian said.

An equity call option conveys the right to buy the company's shares at a fixed price within a specified time period while a put option gives the right to sell the security's shares at a given price and time.

(Reporting by Doris Frankel; Editing by Diane Craft)