XRT Bearish Cross Could Burn Recent Call Buyers

XRT options traders have been gravitating toward calls over puts -- but not today

Feb 24, 2017 at 1:51 PM
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Options trading on the SPDR S&P Retail ETF (XRT) has picked up of late, as the shares have charged higher. At last check, the exchange-traded fund (ETF) was up 1.5% at $43.73, tracking higher with retail stocks -- including a post-earnings pop for shares of Gap Inc (NYSE:GPS). Below, we'll dig deeper into XRT's technical and sentiment backdrops to get a sense of where it might go next.

While puts are running at double the usual intraday rate today, the ETF's call options have been flying off the shelves in recent weeks, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). XRT's 10-day call/put volume ratio of 1.98 ranks in the bullishly skewed 96th annual percentile, with long calls doubling puts. Moreover, call open interest is in the 91st percentile of its 12-month range, while put open interest is in the middling 50th percentile.

Perhaps these options traders are hoping for more earnings-induced tailwinds for the sector next week, when several big-name retailers hit the confessional. On the other hand, short interest has risen to 37 million XRT shares, suggesting at least some of the call buying -- especially at out-of-the-money strikes -- may be fueled by short sellers hedging.

Technically speaking, the SPDR S&P Retail ETF (XRT) has charted a series of higher lows since early 2016. But that doesn't mean the shares are in the clear. In fact, the retail ETF's 10- and 20-week moving averages just formed a bearish cross, hinting at potential headwinds:

xrt stock chart with bearish cross retail etf

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