Financial Select Sector SPDR ETF (XLF) – Large-volume option plays on the financials exchange-traded fund caught our attention today as shares of the XLF rose 1% to .43. It appears one bullish investor sold about 150,000 out-of-the-money put options across various strike prices to purchase 50,000 out-of-the-money calls. The trader sold 50,000 puts at the January 12 strike for 12 cents each, 50,000 puts at the higher January 13 strike for 24 cents apiece, and finally shed another 50,000 puts at the January 14 strike for 51 cents per contract. The put sales were spread against the purchase of 50,000 calls at the January 16 strike for 16 pennies apiece. Let’s assume all 200,000 contracts exchanged by the investor today represent fresh activity. If this is the case, the trader pockets a net credit of 71 cents per contract, which he retains in full as long as shares of the XLF remain above .00 through expiration in January. Additional profits accumulate if shares of the fund rally 11% from the current price to surpass the .00-level by expiration day.

U.S. Steel (X) – United States Steel was one of four steel companies named by a Goldman Sachs’ analyst whose shares investors should buy. The sector was upgraded from “neutral” to “attractive” in the expectation that favorable pricing will follow the sector’s fortunes out of recession. Steel and scrap prices, having hit rock bottom should improve next year thanks to rising demand from automakers and China. Shares in U.S. Steel responded thanks to the favorable note with a 3% rally to .39 with the 52-week high of .60 set in late-September clearly in sight. Option traders responded through buying December expiration calls from the 45 through 50 strikes and lifting marginally the reading of options implied volatility to 46.5%. The January contract was less active although the 45 strike price saw 1,000 contract trade at a premium of around 2.74.

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