Bullish Reversal On Real Estate ETF Andrew Wilkinson, Interactive Brokers, 08.11.09, 05:00 PM EDT A trader looks for a rally in the IYR by selling puts and buying calls.
iShares Dow Jones U.S. Real Estate ( IYR - news - people ): The real estate exchange-traded fund attracted one trader to initiate a pint-sized bullish reversal in the January 2010 contract Tuesday. Shares of the IYR have surrendered recent gains by falling more than 3% to $39.28. The bullish reversal involved the sale of 1,000 puts at the January 33 strike for $2.50 apiece spread against the purchase of 1,000 calls at the higher January 41 strike for $3.20 each. The net cost of the transaction amounts to 70 cents and positions this investor to accumulate profits above a share price of $41.70 by expiration. The fund must rally 6% from the current price in order for the bullish player to break even on the trade.
This is must likely a protective position on a short to limit losses in case of a melt-up. Why would someone put on a bullish spread after a 40% up move? Now the short is protected on the upside and can reap the rewards on the downside till $33 (full 15% below where it is now).