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Options Report: XLF, Apple, D.R. Horton

The Financial Select Sector SPDR ETF, an exchange-traded fund also known as the XLF, has been down for five consecutive sessions and could be in for a sixth down day Wednesday as traders in the options market are making bets the XLF has further to fall.

The latest blow for banking stocks came earlier in the day after bankers were forced to postpone the sale of $12 billion in debt to help private equity firm Cerberus Capital Management buy Chrysler Groupfrom DaimlerChrysler.

It's been a rough year for the XLF , made up of 92 financial stocks ranging from Citigroup and Bank of America as its top holdings and Federated Investors and MGCI Investment as its smaller holdings. Its five-year total return has averaged 9.9 percent, but its year-to-date performance shows a 0.6 percent decline.

Put volume has been especially active in the XLF Wednesday as implied volatility rises. In the August strikes, the 33 put is grabbing attention with its volume of nearly 28,000 contracts, surpassing open interest of about 19,000. Bigger yet is the September 35 put, where more than 65,000 contracts have traded.

"We had a negative gap yesterday, and we've been seeing lower lows in the XLF," says Scott Fullman, director of strategy at IA Englander. "We have seen an increase in options volume over the past several sessions due to the fact the XLF has turned lower on credit worries from its highs back at the end of May."

The purchase of puts is not confined to the XLF itself, but is also occurring in the puts of some of the biggest component members of the XLF.

Thirty-three thousand August Bank of America puts have traded today, versus call volume of about 10,000. In the September 40 puts, volume is over 11,000 contracts, surpassing open interest of a mere 207 contracts. The September 40 strike had attracted little interest until today, since it's far below the present level of the stock. Bank of America shares have fallen 1.3% over the past month.

Apple

Will Apple pull an Amazon, or a Google? Amazon.com surged more than 25% this morning after posting blowout results; last week Google shares plunged over 8% after it released weaker than expected earnings.

Apple posts earnings after the bell today, and the August 135 straddle continues to price a move in the stock of at least $15 a share, or a move of about 12% in either direction.

An options investor uses a straddle, which is the simultaneous purchase of a call option and a put option with the same strike price, when there is uncertainty over the direction of the underlying stock.

The heaviest call options volume is focused on the August 150 calls, where volume has passed 50,000 contracts, exceeding open interest of 31,000 contracts. The heaviest put volume is in the August 120 strike, where volume has surpassed 16,000 -- well below open interest of 46,000.

D.R. Horton

Are investors in D.R. Horton about to get shot by an earnings nail gun? The second largest American home builder will post earnings before the bell on Thursday. Earlier in the month the company warned it would post a third-quarter loss after orders tumbled 40 percent. It's also expected to announce a "significant" write down in the value of its real estate.

Implied volatility is elevated approaching the earnings release -- at 46%, well above historic averages in the 35% range.

Shares of the company have plunged 27% so far this year. Put options volume in the August calls is swamping call volume today by a margin of nearly 8 to 1.

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BAC
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DHI
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SPDR FIN SEL
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AAPL
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