Today’s tickers: FXI, XLF, DRYS, WMT, CTX, DHI, XHB &XLI

FXI – iShares FTSE/Xinhua China 25 – Shares are down by more than 1.5% to $29.67 as the broader market takes a rest, weary from the recent rally. FXI popped onto our ‘most active by options volume’ market scanner after some activity was noted in the May contract. It looks like investors, who may have initially looked to China to help pull us out of economic despair, driving up prices of foreign markets, are now rethinking such notions. Traders sought downside protection on the ETF by picking up 10,000 calls at the May 29 strike price for 2.17 per contract as shares head closer to being at-the-money. Profits will begin to amass if shares decline to the breakeven price of $26.83. Even more pessimistic was the purchase of 15,000 puts at the May 25 strike price for a premium of 85 cents per contract. Such a position will begin to yield profits at $24.15 and below.

XLF – Financial Select Sector SPDR – The financials ETF has slipped more than 1.9% to $9.25 as a number of TARP-recipient and other bank’s shares currently appear to be on the decline. Reflecting the downward movement was interest in put-buying in the May contract. The May 7.0 strike witnessed 10,000 puts purchased at an average premium of 34 cents each. The more expensive puts at the May 9.0 were also sought after and traders picked up nearly 5,000 at around 94 cents per contract. In contrast to the bearish plays was a bull call spread initiated by the purchase of 7,500 calls at the May 11 strike price for 50 cents each against the sale of 7,500 calls at the May 13 strike for 14 cents apiece. The call spread strategy indicates that this investor, who paid a net cost of 36 cents for the trade, would profit on a rise in share price through the breakeven point at $11.36. He stands to reel in a maximum profit of 1.64 if shares can rally up $13.00 by expiration. One other trade worth noting was a calendar spread established by the sale of 20,000 calls at the April 11 strike price for 19 cents per contract spread against the purchase of 20,000 calls at the June 11 strike price for 73 cents apiece. Apparently this investor does not believe shares will get to through $11.00 by expiration in April, but is hoping they may rally this summer. Thus, he has partially offset the cost of getting long the calls in June and shelled out 54 cents for the privilege.

DRYS – DryShips, Inc. – The drybulk commodities carrier has experienced a 15% share price rally to $5.90. Though shares initially began the trading day down from yesterday’s closing price, the midday rally has inspired call buying in the April contract. At the April 6.0 strike price more than 4,200 calls were purchased for an average premium of 69 cents apiece. The more optimistic April 7.5 strike commanded the highest volume with 12,000 contracts trading hands, 8,000 of which were bought for about 30 cents each.

WMT – Wal-Mart Stores, Inc. – Shares of the retailer are off slightly by less than 1% to $52.70 and investors have painted a positive picture through options activity today. In the near-term April contract traders were seen scooping up 4,000 calls at the 55 strike price for an average price of 64 cents apiece. The April 57.5 strike was also popular with some 2,200 calls bought for a VWAP of 19 cents per contract. But, the April 60 strike really stood out as one investor appears to have established a long position with the purchase of 10,000 calls for a 6 cent premium. Moving ahead, the January 2010 contract was populated with what appears to be a sold straddle at the 60 strike price. The sale of 7,000 calls for 2.69 each combined with the sale of 7,000 puts for a whopping 10.34 per contract yields a gross premium of 13.03 for the trade. Optimally, this investor wants shares to rally by 14% to $60.00 and then settle at that price by expiration next year. If this were to occur he would retain the full 13.03 premium and likely laugh all the way to the bank.

CTX – Centex Corporation – Shares of the residential construction company had rallied about 5% in pre-market trading this morning, but are currently down by 1% to stand at $8.99. Option trades on the company suggest that investors are over the good news released recently regarding the rise in February housing starts and the boost in existing home sales. Traders are once again proceeding with caution on the housing market. One investor picked up 6,000 puts at the April 7.5 for 40 cents apiece and funded the purchase by selling 3,000 calls at the May 10 strike for 1.00 per contract. The investor pockets a 20 cent credit on the trade and establishes downside protection should shares fall beneath $7.50 by expiration. The 20 cent credit is retained in exchange for bearing the risk that shares rebound (above $10.00) as we head into May where this investor is now short 3,000 calls.

DHI – D.R. Horton, Inc. – The homebuilding company’s shares had dipped slightly at the opening bell, however have since rallied more than 2% to $11.17. A nearly identical trade to the one observed on Centex was established in the April and May contracts for DHI. Purchasing 6,000 puts at the April 10 strike price for 75 cents apiece and selling 3,000 calls at the May 12.5 strike for 90 cents each indicates that this investor is looking for shares to decline. This investor does not receive a credit for bearing the risk that shares rebound but instead was obliged to shell out 60 cents to initiate the trade. Shares would need to fall by 16% from the current share price in order to breach the breakeven point on the downside at $9.40 by expiration.

XHB – Homebuilders Index Fund SPDR – Shares of the ETF are currently off by about 1.5% to $11.54 as the broader market exhales after the recent rally. Option traders targeted XHB early this morning and were seen following the general pessimistic trend on housing. In the May contract, 1,300 protective puts were purchased at the 10 strike price for 55 cents apiece. This indicates that investors see the opportunity to profit from downward movement in shares beginning at the breakeven point of $9.45. Potentially even more bearish was a trade involving 10,000 puts at the May 8.0 strike price for 17 cents per contract. All 10,000 lots traded to the middle of the market making it difficult to determine the direction of the trade. If they were sold this trader is particularly pessimistic as he would expect profits to amass starting at $7.83, a price which is 12 cents below the 52-week low of $7.95. Finally, one investor was able to bank profits when he closed a long position in the April contract. Back on March 23rd, this individual purchased about 20,000 calls for 41 cents each at the April 11 strike. Today, he was able to pocket profits of 49 cents per contract by selling those same 20,000 in-the-money calls for 90 cents each.

XLI – Industrial Select Sector SPDR – Earlier in the week we noted heavy activity in the industrials ETF as a bull rolled a successful April expiration trade higher, banking profits along the way. Today volume of 16,000 lots has appeared on the bear side of the fence as investors digest an interesting week’s worth of news. With equities lower, shares in the industrials ETF are lower by 1.1% at $19.42. Investors paid around 70 cents as they bought put options at the 19.0 strike securing selling rights in the event of further fallout. We’re unsure whether this is the work of bulls wary of the strength and fervor of the rally or whether the bears are back in town.