As the markets sold off on Friday, large combination trades targeted the SPDR Consumer Staples Fund and the SPDR Retail Fund in what appears to be a coordinated strategy.
The XLP was down 0.6 percent to close at $35.05 after hitting an all-time high of $35.40 on Thursday, continuing to trend higher for the last 11 months from $28. The XRT finished in the middle of its recent range at $59.05, having traded at a 52-week high of $63.04 in March and down at $43.50 last August.
Both exchange-traded funds saw heavy option trading to close the week. In the XLP had more than 62,000 contracts changing hands against a daily average of 8,500, while in the XRT had 78,000 trading against an average of 26,000.
Our systems detected the first set of trades in the XLP when 28,900 each of the August 32 puts and 38 calls changed hands, both for $0.02. Thirty minutes later we saw very similar activity in the XRT when 19,457 each of the August 52 puts and 63 calls traded for $0.13.
This could have been any number of strategies, but it appears most likely that the trader was selling the puts to buy the calls in the XLP, essentially getting long the stock if it moves sharply higher or lower. The same or the opposite strategy may have been applied in the XRT.
If it was the opposite, the trader may be using the dual-pronged strategy essentially as a way to get long volatility without any up-front costs. (See our Education section)
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