XLF – Shares in the financial sector ETF reversed early losses after news of the Ambac bailout, closing .51% higher at $27.34 this afternoon. Interestingly, the nearly 300,000 contracts trading on our platform this afternoon showed 3.6 times as many calls trading as puts, much of this at the April 28 strike. More than a third of today’s volume on the XLF traded in April 28 calls, bought heavily at 95-98 cents for the right to purchase XLF shares for $28 in April, thus implying a return to early February levels this spring.

WB – Wachovia – Shares in the financial services giant – one of a number said to be involved in the Ambac bailout plan – closed 1.2% higher this afternoon at $34.73. This current share price represents 10 times the company’s earnings, the next round of which is due on April 16. Shares in Wachovia have traded as high as $55.65 over the past 52 weeks, an erosion that shows in its 75.9% historic reading. Interestingly, while this morning’s volume appeared to coincide with that April earnings-correlated contract, the position involved about 25,000 lots in a short strangle position. In this strategy, the trader would take the $4.05 premium in the expectation of Wachovia shares remaining within the range delineated by the two strike prices in the strangle. This is a strategy often deployed when volatility is high and the trader expects it to level off sharply heading into expiration.

GTXI – Shares of drugmaker GTx bounded 37% higher today to $17.70 after the company reported that an experimental drug in its pipeline met treatment objectives in late-stage clinical trials involving patients with advanced prostate cancer. The drug, toremifene citrate, is used to treat hormonal side effects of a common prostate cancer therapy. While total option volume surged to more than 12 times the normal level, and calls are out-moving puts by 7 to 1, it appears that much of this traffic is involved in front-month call selling at the 17.50 and 20 strikes, implying a sharp pullback in GTx shares once the frenzy of the clinical trial announcement abates. Further evidence of contrarian positioning was seen in the April contract, where it looks like traders went short call spreads between strikes 15 and 22.50. In this case, the trader would have sold the 15 calls for $3.70 and bought the 22.50 calls for $1.30, initiating the trade with a $2.40 credit that yields a break-even at $17.40.