XRT Options Volume Accelerates Ahead of Retail Earnings Onslaught

The retail fund has been trading in a channel of lower highs and lows since early December

Karee Venema
Aug 8, 2017 at 2:18 PM
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Positive earnings reactions for Michael Kors and Ralph Lauren are helping to boost retail stocks today, and with them, the SPDR S&P Retail ETF (XRT). At last check, XRT shares were trading up 0.3% at $41.44, on track for their highest close since early June. XRT options traders are getting in on the action, too, with nearly 22,000 contracts traded -- more than two times the average intraday rate, and volume pacing in the 82nd annual percentile. 

Most active is the weekly 9/1 41-strike put, due to a 6,100-contract block that was likely bought to open. This activity was tied to stock, though, suggesting a trader may be initiating an options hedge ahead of an onslaught of retail earnings due over the next few weeks. 

The weekly 8/11 42-strike call has also received notable attention, and it seems safe to assume new positions are being purchased here. If this is the case, the goal is for the retail exchange-traded fund (ETF) to break out above the $42 mark by this Friday's close, when the weekly series expires. 

More broadly, the trend in XRT's options pits has been toward long puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 22,168 puts on the retail fund in the last 10 days, versus 3,090 calls. The resultant put/call volume ratio of 8.53 ranks 6 percentage points from a 52-week peak, pointing to elevated demand for bearish bets over bullish.

The September 37 put has seen the biggest rise in open interest over this time frame, with 39,541 new positions added. Data from the major options exchanges confirms significant buy-to-open activity here in recent weeks, suggesting options traders are bracing for a breach of $37 by the close on Friday, Sept. 15, when the back-month options expire. 

The last time the ETF explored territory south of $37 was in May 2013. More recently, XRT shares have been trading in a channel of lower highs and lows since topping out at an annual high of $48.26 in early December, bottoming in mid-July in the $38.50 neighborhood -- home to the fund's 80-month moving average.

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