XRT Options Pick Up as Retail Stocks Drop

Retail stocks are getting hit hard today as several retailers -- including Macy's (M) -- report dismal holiday sales data. At last check, the SPDR S&P Retail ETF (XRT) was down 2.5% to trade at $43.22. Volume is ramping up in XRT's options pits, too, with speculators targeting short-term contracts on the retail-heavy exchange-traded fund (ETF).

With about two hours left in today's trading, roughly 30,000 calls and 33,000 puts have changed hands on XRT -- almost six times the expected intraday amount. Most active is the weekly 1/11 43-strike call, where it looks like new positions are being purchased for a volume-weighted average price of $0.53. If this is the case, breakeven for the call buyers at tomorrow's close is $43.53 (strike plus premium paid).

Elsewhere, the biggest block traded on XRT so far is a 10,000-contract lot of January 2019 40-strike puts. It's possible a trader paid $190,000 (number of contracts * $0.19 premium paid * 100 shares per contract), anticipating the ETF to breach the round $40 by front-month options expiration at the close next Friday, Jan. 18.

Widening the scope reveals options traders have been buying to open puts relative to calls at a quicker-than-usual pace in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), XRT's 10-day put/call volume ratio of 5.70 ranks in the 83rd annual percentile.

Looking at the charts, XRT hit a 16-month low of $38.10 during the Christmas Eve sell-off, but has since climbed 13.2%. This rebound attempt stalled yesterday in the $44.00-$44.50 region -- home to a 50% Fibonacci retracement of the fund's plunge from early November through late December, as well as its 50-day moving average.