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Big bullish play on consumer staples

Chris McKhann (chris.mckhann@optionmonster.com)

The SPDR Consumer Staples Fund is trading near all-time highs, and a huge three-way strategy is looking for even more upside.

The trade involved 38,000 May 38 puts for $0.07 and 19,000 each of the May 42 and 43 calls for $0.12 and $0.02 respectively, according to optionMONSTER systems. The volume was above the previous open interest at each strike, so this is new positioning.

It appears that the trader is selling the puts to more than offset the cost of a bullish call spread . The trader takes in a small credit from the short puts, which will be the profit if shares are between $38 and $42.

The maximum profit would be realized with shares are at or above $43 by expiration in mid-May. The risk comes if shares are below $38 as the trader is effectively short 3.8 million shares at that level. (See our Education section)

The XLP was down 1.59 percent to $40.77, a day after hitting a lifetime high of $41.44. The exchange-traded fund has been on an incredible run, with only three closes below its 10-day moving average since the start of the year.

More than 128,000 XLP options changed hands, compared to the daily average of 21,000.

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