Consumer Staples Nosedive Triggers XLP Options Trade

The Consumer Staples Select Sector SPDR Fund (XLP) is on pace for its worst week since November

Jun 16, 2017 at 2:37 PM
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The Amazon buyout of Whole Foods is weighing on several grocery chains, which in turn is dragging down the Consumer Staples Select Sector SPDR Fund (XLP). The XLP is on pace for a weekly loss of 1.5% -- its worst since the week of the U.S. presidential election, in November -- and is testing support at a key trendline. What's more, it looks like one options trader today is rolling the dice on that support to hold for the consumer staples exchange-traded fund (ETF).

XLP Options Speculator Places $1.37 Million Trade

Roughly 76,000 XLP put options have changed hands so far today -- seven times the average intraday pace. That's compared to a relatively scant 2,200 XLP calls. However, most of the put action seems to be of the conservatively bullish variety, in the form of a possible bull put spread.

Specifically, it looks like one trader may have sold to open 29,160 September 54 puts, and simultaneously hedged by buying to open an equal amount of September 50 puts. The spreads were established for a net credit of $0.47 apiece, or about $1.37 million total (credit x number of spreads x 100 shares per contract), which the trader can keep as long as XLP remains atop $54 through September options expiration. Should XLP extend today's downtrend and breach $50, the bought puts limit the trader's downside risk.

Put Buying Has Picked Up in Recent Weeks

Prior to today, puts were already the options of choice among XLP speculators. Roughly 563,000 XLP puts are open right now -- in the 98th percentile of its annual range. That's compared to fewer than 77,000 XLP calls -- in just the 17th percentile. In the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than eight XLP puts for every call. The resulting 10-day put/call volume ratio of 8.44 is in the 69th percentile of its annual range, demonstrating a healthier-than-usual appetite for long puts over calls of late.

XLP Shares Test 10-Week Trendline

As alluded to earlier, the Consumer Staples Select Sector SPDR Fund is taking a hit today, down 1.3% at $55.84. However, XLP shares are testing their 10-week moving average, which haven't been breached on a weekly closing basis since early December. Plus, the  $54.50 region acted as support earlier this year, and could do so once again. Since touching an annual low of $49.98 on Dec. 1, XLP has added close to 12%, notching an all-time best of $57.36 on June 5. Perhaps the aforementioned surge in XLP put buying is attributable to speculators seeking an options hedge, in the event of a pullback such as today's.

consumer staples xlp etf chart


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