FXI – iShares FTSE/Xinhua China 25 Index Fund – Covered call writers were drawn to the China ETF’s near-term June contract in numbers this morning looking for modest gains in the underlying shares by expiration. The fund is currently up by about 1% to $38.45. The closer to-the-money June 39 strike price had some 1,500 calls written by traders who accepted a premium of 1.16 apiece. Such investors simultaneously got long of the equivalent number of shares at a price reduced by the 1.16 premium. These individuals do not see the FXI rallying too much further. More bullish buy-writing was observed at the higher June 41 strike price where nearly 12,500 calls were sold for 51 cents each. Given the current share price of $38.45 and the 51 cent premium received on the trade, the investors who are now long of the stock can accrue maximum potential gains of about 8% all the way up to $41.00 per share. If the price of the China fund exceeds either of the strike prices described, the calls will likely be exercised and the covered call writers will have the underlying shares called away by expiration.

IYR – iShares Dow Jones Real Estate ETF – Heavy options volume on the real estate sector made our screening tools liven up earlier, only to leave us scratching our heads on the nature of the trade. We think the heavy put volume marks a ratio put spread that would benefit in the event that the share price moved to six-week lows before September. Shares in the fund are higher today at $35.60 and haven’t traded at a price of less than $30 since April 21. Today’s trade involved 42,000 puts at the September 25 strike marked as a spread trade against 21,000 puts at the 30 strike in the same expiration month. Our confusion came from the fact the trade looks to have been sold rather than bought, but this makes little sense from the ratio nature. An investor bullish on real estate would have sold the higher strike put taking in a larger premium and bought the lower strike. The fact that two of the lower strikes were sold undermines the way the trade appears to have been recorded on the exchange. By selling twice as many of the lower strike puts the investor has managed to effectively reduce the premium outlay from 2.40 to just 10 cents per contract, which has a significant impact in raising the breakeven from a share price of $27.60 to $29.90.

YGE – Yingli Green Energy holding Co. – Our scanners picked up on heavy call action in Yingli Green, the Chinese photovoltaic battery provider. Its share price is once again on the rise as it stands 6.7% higher today at $13.90. Within the last months shares trade as low as $7.33. It would appear that today’s action stems from profit taking on bullish bets surrounding prospects for the stock made on May 11, some two weeks prior to earnings announcements. In the event the company cited a slew of reasons why terrible conditions created losses rather than expected profits. Regardless these option bulls appear to have cleaned up today cashing in several thousand calls at the 10 and 12.5 strikes in the June contract. The 10 strike calls originally purchased for 80 cents are now deeply in-the-money and sold for 3.90 earlier today, while the 45 cent premium paid for 12.5 strike calls was cashed in for 1.95 today. Bulls continue to seek further upside in this company and chose to buy June expiration 15 strike calls, and in so doing require a rally to breakeven of 13.4%.

VRTX – Vertex Pharmaceuticals, Inc. – The Massachusetts-based pharmaceuticals company has experienced a share price decline of about 2% to $30.83. One investor was seen banking profits on a previously established put position and then reenacting a similar strategy in the October contract. The trader reeled in a nice chunk of change by buying back some 7,250 puts for 15 cents today at the July 22.5 strike price. It appears he had originally sold the puts short for an average premium of 1.40 apiece on March 25, 2009 when shares were trading at around $29.48. Closing out the position today has yielded the investor net profits of 1.25 per contract. With pockets full of premium, the trader targeted the higher October 25 strike price in order to sell another 7,250 puts short for 1.50 each. The investor will once again retain a good portion of the premium received if the cost of the puts declines significantly over the next three months time.

XLF – Financial Select Sector SPDR – An option player eager for shares of the XLF to remain stagnant around $12.00 by expiration through December has initiated a sold straddle today. Shares of the fund are currently up by more than 2.5% to $12.33. The December 12 strike price saw the sale of 3,500 puts for a premium of 1.74 apiece in combination with the sale of 3,500 calls at the same strike for about 1.68 per contract. The gross premium received by the ‘straddler’ amounts to 3.42. This individual will retain the full premium if both the calls and the puts land exactly at-the-money with a share price of $12.00 by expiration. However, the 3.42 pocketed will erode if shares move in either direction away from the central strike price. Losses will begin to accrue if shares rise above the breakeven point to the upside at $15.42 or if they fall below the breakeven point to the downside at $8.58. The trader is unlikely to lose to the downside as shares of the XLF have not traded beneath $9.00 since the end of March, 2009. A rally of more than 25% for the ETF would result in potentially unlimited losses.