Tuesday Options Outlook: XLE, AKS, COF, XLY, MAT, GD, RTN, HRB

July 1, 2008

Rebecca Engmann Darst co-authored this article.

Energy Select Sector SPDR (XLE) –US stocks atrophied today, oozing into
bear market ague after showing symptoms high and low for weeks. The culprits
are well-known – ongoing and hemorrhaging in the financials and what has
tended to feel like horizonless gains for oil. Yesterday’s break past
$143 for oil prices was met with a swift pullback on suggestion that the U.S.
dollar might be nearing the end of its catastrophic ebb against other
currencies, and lower U.S. demand materializing. The pullback was quickly
backtalked with troubling tensions between Israel and Iran, news out of OPEC of
a record high in the daily average oil price, and the near-ish advent of
hurricane season. So it’s against this manifold backdrop that we find the
Energy Select Sector SPDR flat-to-higher at $88.61 and trading on volume
of more than 125,700 lots to rank it handily among the top -10 most active
tickers on our platform. Early action showed traders looking for a new break of
the $91.16 52-week high by August 16, expressing this view via 90-strike calls
which traded for $3.26. Any substantial positions for a pullback in oil look to
have settled on the September contract, where we picked up a 20,000-lot put
spread between strikes 75 and 85. Here it looks as though the 85-strike puts
were bought for $4 while the lower strike was sold for $1.37, creating a $2.63
debit that breaks even for the trader with a 6% decline by mid-September.