XRT Options Traders Brace for a Quick Retreat

Retail stocks are bouncing today, despite a historically bearish season for the sector

Apr 20, 2017 at 11:17 AM
facebook X logo linkedin

It's been a rough stretch for retail stocks, as evidenced by the price action in the SPDR S&P Retail ETF (XRT). Since hitting an annual high of $48.26 in December, the exchange-traded fund (ETF) has shed almost 11%. Plus, more than half of the 72 "retailing" stocks we track are trading south of their 80-day moving average, while XRT is the only ETF we follow whose shares are in the red on both a year-to-date and year-over-year basis. And while XRT is up 1.2% today at $42.92, retailers have historically been some of the worst stocks to own in the second quarter. XRT options traders aren't buying today's surge either, with puts crossing at a quicker-than-usual clip.

XRT Put Buyers Bet on an End-of-Week Pullback

By the numbers, nearly 10,300 XRT puts have been traded -- six times what's typically seen at this point in the day. As a point of contrast, roughly 6,600 calls are on the tape, about three times the average intraday amount. Almost all of the day's put activity has centered at the April 42 strike, where it looks as if new positions are being purchased. If this is the case, the expectation is for XRT to retreat back below $42 by front-month expiration at tomorrow's close.

XRT Calls Have Been the Options of Choice

Widening the scope reveals that today's put-skewed session marks a change of pace in XRT's options pits. Of the 337,554 open XRT positions, 172,096 are calls -- in the 96th annual percentile -- versus 165,458 puts, in the low 38th percentile of its annual range. XRT's top open interest position is the May 43 call, where 27,740 contracts reside. The majority of the action appears to have occurred on April 5, when one options trader rolled her long April 23 calls out to the back-month series.

Echoing this upbeat outlook is XRT's top-heavy 10-day call/put volume ratio of 1.14 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 85% of all comparable readings taken in the past year, meaning calls have been bought to open over puts at a faster-than-usual clip.

Short-Term XRT Options Priced at Affordable Levels

Regardless of whether they're targeting puts or calls on XRT, those purchasing premium are getting a relatively good deal. In fact, the SPDR S&P Retail ETF's (XRT) Schaeffer's Volatility Index (SVI) of 20% is perched in the 3rd percentile of its annual range. Simply stated, low volatility expectations are being priced into the ETF's near-term options, which makes it less expensive for options buyers to initiate new positions.

Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!