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Option Volume Briefs: Targeting Upside in the Healthcare Sector

Short-term call buying seen in the Health Care SPDR (ETF) (XLV)

by 10/2/2012 1:34 PM
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The Health Care Select Sector SPDR (ETF) (NYSEARCA:XLV - 40.46) is seeing some bullish attention today on the part of short-term call speculators. In fact, total call volume on the security is running at more than twice the typical pace, with more than 11,000 contracts changing hands. This compares to fewer than 1,000 puts having traded.

More than 9,600 of today's call volume is centered at the out-of-the-money October 41 call strike. Given existing open interest of just 1,215, it looks like these are trading on the opening side. With 95% of the options going off at the ask price, it also appears these calls are being bought to open. Breakeven at expiration is $41.20 (the strike price plus the average premium paid), which is 1.8% above current levels. Long calls have unlimited profit potential to the upside, while downside is capped at 100% of the premium paid.

The XLV has been steadily chugging higher since early 2009, driven by leading components such as Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ) -- which together make up almost one-quarter of the ETF. Since its March 2009 low of $21.63, the ETF has nearly doubled in value; in the past 52 weeks alone, the security is up more than 31%. Today's call buyers are expecting this upward momentum to continue, at least through the next few weeks until October options expire.

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