Tech Traders Seek Put Options as XLK Eyes Ninth Straight Gain

Technology Select Sector SPDR ETF (XLK) could be staring down several levels of notable resistance, with traders looking to hedge their bets with XLK puts

Feb 15, 2017 at 12:29 PM
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With the recent outperformance among tech stocks -- including Apple Inc.'s (NASDAQ:AAPL) record-breaking pop today -- the Technology Select Sector SPDR ETF (XLK) is on track for its ninth straight win, with the shares tacking on more than 7% already in 2017. However, in spite of its technical strength, XLK could be staring down several layers of heavy resistance, and it looks like some traders are hedging their bets with put options.

XLK Looking Up At Resistance

So far today, XLK is up 0.1% at $51.75, and earlier notched a new 16-year high of $51.83. However, XLK could be closing in on a number of potential resistance levels. Immediately overhead, the $52 mark is roughly four times XLK's 2009 lows, while the farther-overhead $56 level was home to notable resistance during the early 2000s dot-com bubble. If XLK manages to break through both of these key technical marks, it could hit an additional barrier at the $57 mark, which is roughly five times XLK's 2002 lows.

170215XLK

Options Players Hammer XLK Puts

In the options pits, traders have been more put-heavy than usual. XLK's put open interest is in the 82nd percentile of its annual range, with 229,551 contracts on the books. Meanwhile, call open interest is currently at just 91,162 contracts, in the bottom 21% of its annual range. In addition, XLK's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 8.63, in the 91st percentile of its annual range, pointing to a healthier-than-usual appetite for long puts over calls in the past two weeks -- a sharp reversal from the trend seen in late January.

Drilling down, the September 45 put is easily the most added option over the past 10 days, with 71,236 contracts opened during the last two weeks -- about four times more than the next most active option, according to Trade-Alert -- and with notable buy-to-open activity. The September 45 put is now XLK's top open interest position. While it's possible some of this open interest comes from skeptics betting on a sharp pullback, it's also likely that some bullish tech sector traders are seeking an options hedge, in case of a "bubble burst." After all, XLK's 14-day Relative Strength Index (RSI) is in overbought territory, at 75.

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