XLF - Financial Select Sector SPDR – A large bearish spread in the June 2010 contract suggests one investor feels the need for downside protection through expiration. Shares are slightly up this afternoon by about 0.25% to $14.09. The trader purchased 20,000 put options at the June 14 strike for an average premium of 1.91 apiece. He financed the long position by selling 20,000 puts at the June 11 strike for 74 cents each, and by selling another 20,000 puts at the lower June 10 strike for 51 cents premium. The net cost of the transaction amounts to 66 cents per contract. The investor responsible for the three-legged spread is possibly holding a long stock position in the XLF. The put options might then serve to protect the value of the position in the event that shares decline beneath the effective breakeven point at $13.34 by expiration. The fact that the trader is short two times as many puts indicates this investor expects a pullback but not a collapse beneath the lower strike price of $10.00.

ETFC - E*Trade Financial Corp. – The Wall Street Journal reported that ETFC withdrew its application for funding through the Troubled Asset Relief Program (TARP) because the company's "recent capital-raising and debt-reduction efforts negates the need for the money." E*Trade raised $150 million by selling stock in the third quarter out of some $765 million of sold stock this year. The seemingly bullish news that the company no longer plans to participate in the capital-purchase program did not do much for the current share price, which slipped 6% lower to $1.37. Our scanners picked up on interesting options activity this afternoon that may or may not have been inspired by today's news. It appears 95,000 put options sold at the January 1.0 strike for about 5.5 pennies apiece. One may infer the transaction represents bullish sentiment on ETFC if the sale of the put options is fresh activity. If this is the case, the trader pockets the 5.5 cents premium, and expects shares to remain above $1.00 through expiration. However, the sale could also be the work of an investor closing out a long put position given the already high reading of open interest at the small number of available strike prices.

CF - CF Industries Holdings, Inc. – The manufacturer of nitrogen and phosphate fertilizer products bolstered its bid for Terra Industries (TRA) by tacking on a cash portion to the offering. CF shares edged slightly higher this afternoon to $83.31. CF shares rallied 143% to a 52-week high of $95.12 on October 19, 2009, since touching down to a 52-week low of $39.14 on November 20, 2008. However, one option trader is expecting continued gains in the price of CF shares through expiration in January. This individual initiated a call spread by purchasing 10,000 calls at the January 95 strike for an average premium of 2.30 apiece, marked against the sale of 10,000 calls at the higher January 100 strike for 1.05 each. The net cost of the bullish strategy amounts to 1.25 per contract. Shares of CF must surpass the current 52-week high in order for the trader to breakeven at $96.25. The investor will bank maximum potential profits of 3.75 per contract for a total of $3,750,000 if the stock rallies 20% from the current price to $100.00 by expiration day in January.