Today’s tickers: XLI, XLY, DELL, CAT, XLF, AET, AN, EWT, SLAB, QLGC, BYD & INTC

XLI Industrial Select Sector SPDR – The industrials ETF attracted massive amounts of downside protection by investors fearing a near-term contraction in shares of the fund. The price per share is currently up by 3% to $23.19 on the day following broader market gains experienced today. However, traders have enacted a decidedly bearish position on the fund in the near-term May contract. At the May 19 strike price more than 65,100 puts were purchased for an average premium of 17 cents apiece. These option contracts will begin to yield profits to the downside beginning at the breakeven share price of $18.83. Further along, the in-the-money June 23 strike price saw traders who were likely banking gains on the rise in shares today by selling approximately 27,000 calls for an average premium of 65 cents per contract.

XLY Consumer Discretionary Select Sector SPDR – The consumer discretionary ETF jumped onto our ‘most active by options volume’ market scanner after investors bought a huge chunk of puts in the near-term May contract. Shares have rallied by 4% to $21.80 today, creating lesser cost premiums on put options. At the May 20 strike price approximately 58,100 puts were picked up for an average premium of 18 cents apiece. Investors have certainly appeared to brace themselves for bearish movements in the fund. Fleshing out the pessimistic picture was the sale of 2,290 calls at the May 23 strike for 82 cents which indicates that traders do not see today’s rally stemming too much further, particularly in the near-term.

DELL Dell Inc. – The just-in-time manufacturer of personal computers has rallied by more than 4% to $11.35 amid broad market gains today. We observed one trader who appears to have established a covered call in the January 2010 contract. It is likely that this investor bought shares of the underlying stock today or was already long the stock previously, and then sold 24,500 calls at the January 12.5 strike price for a premium of 1.50 each. The trader pockets the 1.50 premium and has locked into gains of 10% on the rise in share price should the calls land in-the-money and the underlying stock get called from him at expiration next year.

CAT Caterpillar, Inc. – Shares of CAT have rallied by more than 3.5% today to arrive at the current price of $34.00. One investor initiated a large-volume ratio put spread in the August contract, which suggests that he has locked into gains by protecting himself in case there should be a downturn over the next four months. The spread was established be the purchase of 15,000 puts at the August 29 strike price for 2.29 apiece against the sale of 30,000 puts at the August 20 strike for 57 cents per contract. The ratio of two puts sold to each purchased reduced the net cost of the spread by amount 50% to 1.15. With a breakeven share price of $27.85 on the trade the investor will begin to amass profits if shares decline by about 18% from the today’s price. Losses wouldn’t mount unless Caterpillar shares fell beneath $12.85 thanks to profits of 7.85 per contract apparent at a share price of $20.00.

XLF Financial Select Sector SPDR – With the story breaking this morning about six named banks perhaps needing added capital after the results of the stress tests are due next Monday, investors are remarkably at ease. That’s due in part to the ‘here’s how to fix the problem’ suggestion that banks can convert preferred to common equity, thus boosting capital needs. Arguably, financials are well positioned for revival from this point. The banking upgrade from Fox Pitt Kelton’s David Trone resting on the premise that banks would clear the hurdles they face by year end also soothed investors’ frayed nerves. It appears that the financials ETF, up more than 4% today to $10.85, has attracted one particularly hopeful investor looking for continued bullish gains in the near-term May contract. The sale of 50,000 puts at the May 9.0 strike price for a premium of 17 cents apiece was spread against the purchase of 50,000 calls at the May 12 strike for 20 cents each. The net cost of the trade amounts to 3 cents and begins to yield profits to the upside at the breakeven share price of $12.03. Shares would need to rise by another 11% from today’s price in order for this bullish trader to reel in the cash by expiration next month.

AET Aetna Inc. – The third-largest U.S. health insurer’s shares have slumped by more than 7.5% to $22.52 amid reports that the Hartford, CT-based company has had to spend more than expected on health benefits for workers who have lost their jobs. The decline in shares runs counter to the company’s positive first quarter earnings of 96 cents per share, which beat estimates by about 3 cents amid an increase in revenues by more than 10% to $8.6 billion. However, earnings were pared by the firm’s higher-than-expected costs stemming from increased patronage of Cobra coverage as well as a rise in the number of workers using up benefits for fear that their jobs would be terminated or their health benefits parsed in this recessionary environment. Persons who utilize Cobra tend to have higher medical costs as they are generally older and sicker. The company confirmed in an article published today that it spends about two times as much on each Cobra member as the member shells out in premiums. Options activity highlighted bullish investors looking for opportunity on the stock despite the news regarding higher expenses. Traders picked up more than 23,600 calls at the May 25 strike price for an average premium of 30 cents per contract. Rounding out the bullishness was the sale of 1,500 puts at the May 22.5 strike for 1.16 each and the sale of some 4,000 puts at the June 22.5 strike price for 1.92 apiece. The more than 45,700 lots actively traded today represent more than 60% of the existing open interest on Aetna of 75,400 contracts.

AN AutoNation, Inc. – The automotive retailer has experienced a 3% rally in shares to $18.00, just 70 cents off the 52-week high for the stock of $18.70. We observed one investor who has utilized options in order to assume a nearer-term bearish position in the July contract and a more bullish stance in the further-term October contract. The trader, who is likely long of AutoNation stock, established a put spread by purchasing 5,000 puts at the July 17.5 strike price for 2.00 apiece spread against the sale of 5,000 puts at the July 12.5 strike for 40 cents each. The net cost of the downside protection amounts to 1.60 for the trade and yields a maximum potential profit of 3.40 if shares were to decline to $12.50 by expiration. The investor is likely revved up by the recovery in shares to date, and has thus locked into protective puts in case shares should reverse direction in the next 3 months. The final puzzle-piece that completes this trader’s big picture is the purchase of 5,000 calls at the in-the-money October 15 strike price that cost 4.79 per contract. These call options are likely an expression of an opinion that the entire auto sector will have successfully traversed all of its speed bumps come October expiration, or at the very least that investors can see recovery six months down the road.

EWT iShares MSCI Taiwan Index – Shares of the ETF have leapt upwards by more than 12% to stand at $9.80 today. EWT claimed the top spot on our ‘hot by options volume’ market scanner after one investor traded some 40,000 contracts today on the previous total open interest for the fund of just 15,213 lots. Despite the share price rally the trader looks to have taken a bearish stance on the stock by selling 20,000 calls at the June 10 strike price for 34 cents each in order to purchase 20,000 puts at the June 8.0 strike for 17 cents apiece. The trader receives a net credit of 17 cents for the trade and amasses profits to the downside beginning immediately at the lower strike price of $8.00 in addition to collecting the net premium. Other investors seemed to follow along with the pessimistic view as another 2,800 puts were picked up at the May 9.0 strike for an average 20 cent premium per contract.

SLAB Silicon Laboratories Inc. – The provider of mixed-signal integrated circuits has surged by more than 10% to stand at $32.04 per share after the company reported sales and earnings that exceeded analysts’ expectations. The Austin, Texas-based SLAB announced earnings of 22 cents per share which trumped the average consensus of approximately 13 cents. Investors got bullish on the stock by picking up more than 1,600 calls at the June 35 strike price for an average premium of 67 cents apiece. Shares would need to rally by an additional 11% to the breakeven point at $35.67 in order for bullish traders to profit by expiration in June. SLAB appeared on our ‘top option implied volatility % losers’ market scanner as volatility on the stock dissipated from 50% yesterday to 36% following the firm’s positive earnings results.

QLGC QLogic Corporation – The designer and developer of storage network infrastructure components has experienced a share price rally of more than 9% to $14.61 ahead of earnings expected for release tomorrow afternoon. One news source reported rumors of a potential takeover of the company by EMC Corporation which may have contributed to the surge in option implied volatility on the stock which is up to 61% from the reading of 53% yesterday. Option traders jumped into bullish calls in the May contract by purchasing more than 6,300 contracts at the 15.0 strike for an average premium of 37 cents apiece. In order to profit from the call options by expiration, shares need only increase by another 5% from the current price to the breakeven point at $15.37.

BYD Boyd Gaming Corporation – Shares of the gaming company, which owns some 15 casinos, attracted bullish investors who were eager to play with options on the stock. BYD appeared on our ‘hot by options volume’ market scanner amid a more than 8% share price rally to $8.70. Individuals looking to get bullish heavily favored the May 10 strike price where more than 11,900 calls traded hands with approximately 7,500 of the contracts purchased for an average premium of 50 cents apiece. The call-to-put ratio currently stands at more than 18-to-1 indicating that 18 call options were traded for every single put in action. Shares would need to continue to climb by about 15% from the current price in order for the May 10 calls to land in-the-money by expiration.

INTC Intel Corporation – The semiconductor chip maker has experienced a share price rally of more than 1.5% to $15.32. We observed one options investor who is hoping to see shares continue to climb through expiration in June as he employed the covered call strategy. It appears that this individual bought shares of Intel and simultaneously sold 15,000 calls at the June 17 strike price for a premium of 24 cents per contract. This transaction provides an exit point if shares rise through $17.00 by expiration and yields the trader gains of about 11% on the stock in addition to the 24 cent premium enjoyed today.