A handful of big U.S. banks will report earnings later this week, with JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) stepping up to the plate on Friday. Ahead of the flood of quarterly reports, it looks like one options trader is betting big money on a short-term rally in the Financial Select Sector SPDR (NYSE:XLF).
The exchange-traded fund (ETF) has seen roughly 96,000 call options change hands today -- almost twice the average intraday pace, and three times the number of XLF puts traded. More than half of the action has transpired at the April 28 call, which has seen over 48,000 contracts exchanged -- mostly in a block of 35,000.
Specifically, it appears one trader bought to open the block of front-month calls for 36 cents apiece, or $1.26 million ($0.36 x 100 shares per contract x number of contracts), per Trade-Alert. By purchasing the calls to open, the buyer will make money if XLF shares top $28.36 (strike plus premium paid) by next Friday's close, when April options expire.
The bank ETF has been struggling beneath the $28 level since March 22, and this area is also home to its formerly supportive 120-day moving average. However, XLF's 200-day moving average has emerged as support since the fund's drop from 10-year highs. Further, the $26.50 neighborhood also represents a 23.6% Fibonacci retracement of XLF's rally from early 2016 until the late-January peak, and contained the ETF's downward momentum during the February correction. At last check, XLF was up 1.7% at $27.78.
