Huge put activity in two sector ETFs

Equities are trying to break a four-day losing streak, but some key sector funds are seeing downside option activity.

Three large put trades dominate todya's action in the SPDR Industrial Fund and the SPDR Materials Fund. The XLI is off 0.14 percent at $34.57, while the XLB is down 0.17 percent at $34.35.

The most active contracts are the XLB July 34 puts, as two blocks of 50,000 traded for $0.36 this morning. The biggest print of the day traded 20 seconds later when 62,000 XLI July 34 puts traded for $0.30. Those appear to have been bought for the ask price on a $0.03 bid/ask spread. The action in the XLB, which traded on a $0.01 spread, isn't as clear.

There could be a host of possibilities behind all this action in the two exchange-traded funds. A huge institutional trader could be buying the puts in both as an outright bearish bet that the slide will continue and/or worsen after the Fed report at 2 p.m. ET today. It could also be hedging , either against long shares in the funds or their underlying stocks.

This could also be a relative-value play , with the trader buying the puts in the XLI and selling those in the XLB. A lot of hedge funds like those types of bets if they believe that one sector or industry might outperform. (See our Education section)

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