Why puts are surging in consumer ETF

Put trading dominated yesterday's option action in the SPDR Consumer Discretionary Index Fund as it traded close to its all-time high.

The XLY was down fractionally on the day to close at $44.08. The exchange-traded fund bounced off support below $42 at the start of June. Shares ran from a 52-week low of $33.07 to an all-time high of $46.27 on the first day of May.

The fund saw 84,029 change hands yesterday, and all but 3,000 of them were puts. This was about 9 times its daily average.

A trader bought two blocks of 15,000 of the September 42 puts for $1.05 and $1.06 while selling  30,000 September 35 puts for the bid price of $0.22. The volume was well above open interest at both strikes, so this is a new vertical spread .

The spread cost the trader $0.835 to open, which is the most that can be lost if the XLY is above $42 at expiration. The potential gain is $6.165 if shares are below that level, which it hasn't seen since the October lows. (See our Education section)

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