Whoever made these trades deserves a medal in timing. Remember on Thursday I reported via CrimsonMind that someone sold 28,260 May 29 calls of $KBE (SPDR KBW Bank ETF) for $0.58 and purchased 28,260 May 27 puts for $0.40? If I'm calculating this correctly, that's $1,639,080 collected upfront on the call sale and $1,130,400 used to buy puts. So the calls were used to finance the put buy with $500,000 left over. The May 27 put closed at $1.00 on Friday, up $0.60 or 150%! So the put contracts are now worth $2,826,000 (-1,130,400 purchase) = $1,695,600 net. Add on to that the $1,639,080 collected from the call sale (assuming KBE expires in May below 29) and the trader made $3,334,680 in less than 24 hours. The problem is profits are unrealized until the trader unloads all the contracts or exercises them below $26.60 before May 21. KBE closed at 27.26 (-3.23%). If volatility really picks up here this trade could be up 200-300% by expiration. If it was a levered hedge on long KBE positions, it was a hedge with dividends. That's why you watch option volume people! If you followed the puts with 2 naked contracts you turned $80 into $200 (less commissions) or just protected your KBE shares. I'm not recommending you do this, it's very risky on the downside if naked (.40 could turn into .30 pretty quickly).
From post on 4/15/2010: Retail, KBW Bank ETF Protection, ISE Sentiment Index Volatility (ISEE, KBE, XRT, IWM)