Financial ETF draws bullish stock and option combination trade

By Doris Frankel

CHICAGO, April 7 (Reuters) - The Financial Select Sector SPDR exchange-traded fund (XLF.P) appears to have attracted a huge bullish stock and option combination trade during the last few minutes of Tuesday's session, according to one trader.

The trade involved the purchase of 100,000 May $8 XLF puts and the purchase of XLF stock at almost the same time, in what professional traders call a synthetic call option, said Jon Najarian, a founder of Web information site optionMonster.com.

In the last few minutes of trade, two huge blocks of May $8 XLF put options of 50,000 contracts were each bought for a premium of 43 cents a contract on the Chicago Board Options Exchange as the ETF shares fell, he said.

The XLF dropped 3.18 percent to $9.13.

The put trade represented 10 million shares of stock. The exact number of shares bought in the ETF was not available.

The fund's shares would have to rise to $9.58 by May expiration in order to break even on the trade.

The strategy enables the investor to take a substantial bullish position in the XLF and could be same as buying a May $8 XLF call option, which gives the right to buy the fund's shares at $8 apiece.

"This trader is expecting a resumption of the recent rally in the financial sector," Najarian said.