Traders seek relief in utility fund


High interest rates have punished utilities, but traders are looking for relief after the Federal Reserve concludes its monthly meeting today.

optionMONSTER's Heat Seeker monitoring system detected the purchase of almost 24,000 December 39 calls in the SPDR Select Sector Utility Fund, most of which priced for $0.35. Volume was quadruple the previous open interest at the strike, indicating that new positions were initiated.

These long calls lock it the price where shares can be purchased in the exchange-traded fund, which counts names such as Duke Energy, Southern, and NextEra Energy among its key holdings. The contracts will let investors cheaply control upside in the sector, limiting the amount of money that can be lost to the downside. (See our Education section for more on how to generate leverage and manage risk with options.)

XLU rose 0.59 percent to $37.53. Rising Treasury yields, which reduce the allure of utilities' dividends, has sent the stock down almost 6 percent since mid-May. It's the only sector fund in the S&P 500 to fall during that time.

The next big catalyst will probably be the Fed's meeting today, at which policy makers are scheduled to disclose how much they will cut bond purchases. A small reduction could potentially drive interest rates lower and boost utility stocks.

Option paper has also been more upbeat in the sector recently, with member stock FirstEnergy and XLU both seeing bullish activity last week.

Disclosure: I am long XLU.

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