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This column was originally published on RealMoney on June 1 at 2:22 p.m. EDT. It's being republished as a bonus for readers.

There was a large put transaction in the

Materials Select Spyder

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, which saw 10,000 of the September $32 puts trade. The transaction was done in two large blocks of 8,800 and 1,200 contracts at the offer price of $1.30. Prior open interest in the strike was just 1,900 contracts, so this appears to be an opening purchase.

My guess is that this is a married put, like the



put volume I reported this morning. (To recap that action, option activity suggested that the most active strike was the September $40 puts in Heinz, which traded 2,500 contracts against prior open interest of 2,300 in the strike. I speculated that it was part of a married put strategy -- buy stock and buy puts -- as investors bet that Heinz stock would work higher and have a floor underneath it. "Marrying" the puts to the common gives you protection in case the bottom did fall out.)

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Meanwhile, the XLB position provides for unlimited upside, albeit with a higher cost basis, but with full downside protection. In this case, with the XLB trading at $32.40 when the option trade crossed the tape at 11:31 a.m., the cost basis or break-even would be $33.70 (the stock price plus the put premium paid). The downside break-even or protection would be $30.70 (the strike price minus the premium paid), or a 1.7% decline in the shares.

Of course, the XLB puts could have been bought against long positions of some of the individual components: The weighting of the top five holdings


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Dow Chemical

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International Paper

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Newmont Mining

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together represent 48% of the ETF.

As is usually the case, the relative implied volatility or cost options on an index tend to be lower than the individual components, so using the XLB puts could be more efficient and cost-effective.

Steven Smith writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback;

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