Call Volume Picks Up on FAANG-Friendly XLY

XLY should continue to be in focus over the Black Friday and Cyber Monday sales events

Nov 22, 2017 at 11:43 AM
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The Consumer Discretionary Select Sector SPDR Fund (XLY) -- whose top holdings include FAANG stocks Amazon (AMZN) and Netflix (NFLX) -- has been roaring higher, as solid earnings and an ongoing tech rally help boost the sector. Earlier today, XLY shares hit a record high of $94.55, but options traders think there's even more upside on the horizon.

At last check, roughly 3,600 calls had traded on XLY, two times what's typically seen. By contrast, a lower-than-expected 109 put contracts were on the tape. The March 95 call is once again most active -- echoing yesterday's intense options trading.

In fact, 26,256 March 95 calls changed hands on Tuesday -- 19,145 of which translated into new open interest overnight. It looks as if most of this activity was of the buy-to-open kind, suggesting options traders are betting on XLY breaking out above $95 by March options expiration.

Widening the scope reveals call buying has been quite popular across the major options exchanges in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), XLY's 10-day call/put volume ratio of 10.74 ranks in the 100th annual percentile, pointing to an extreme preference for long calls over puts.

In addition to the March 95 call, the weekly 12/8 92-strike call has seen the biggest rise in open interest over this two-week time frame, with 13,066 contracts initiated. Trade-Alert indicates the bulk of this activity occurred on Nov. 13, when a number of contracts were likely bought to open for a volume-weighted average price (VWAP) of $1.79. These calls are now bid at $2.42, meaning those who purchased the options are now staring at a paper profit.

Looking closer at the charts, XLY was last seen up 0.07% to trade at $94.37. The shares have now added nearly 16% on a year-to-date basis, with recent pullbacks quickly contained by the fund's 30-day moving average. And heading into Black Friday and Cyber Monday, the retail-heavy fund is trading north of previous congestion in the $92.50 region, which marked tops for XLY throughout most of 2017.

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