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‘Massive’ Bullish Options Trade in Consumer Staples ETF at All-Time High


Options traders are abuzz following a huge bullish options trade in Consumer Staples Select Sector SPDR (XLP) , which is hovering around an all-time high.

The action in the consumer staples ETF is notable because the fund tracks a traditionally defensive sector and suggests investors are moving toward a risk-off posture.

Technical analysts have been pointing to recent strength in safer, conservative sectors such as consumer staples, utilities and healthcare ETFs. [Utilities ETFs Catch a Bid on Safety Trade]

XLP, the consumer staples ETF, has witnessed a “sudden influx of huge call buyers,” says Paul Weisbruch at Street One Financial.

“More than 250,000 January $38 strike calls traded yesterday which will likely result in large asset inflows into the fund via creation activity in the near term. The call trade is equivalent to about 25 million shares of XLP above the $38 level (if the sector gets there),” he wrote in a note to clients Wednesday “So, we see this as bullish, upside positioning by options players, and we will continue to keep a close eye on the sector.”

XLP was trading hands at $36.30 a share on Wednesday afternoon. The ETF’s top holdings include Procter & Gamble (PG), Coca-Cola (KO), Philip Morris (PM), Kraft (KRFT) and Wal-Mart (WMT).

“This exchange traded fund, which offers exposure to mega-cap household names with which consumers continue to transact business regardless of the economic climate, could also be viewed as a defensive portfolio tilt,” says Morningstar analyst Robert Goldsborough in a profile of the fund. “Investors looking for explosive growth are better suited looking elsewhere, however, as this portfolio is chock-full of mature businesses offering relatively stable returns.”

Brenna Hardman at ABN Amro Clearing on CBOE TV said Tuesday’s “massive trade” in XLP call options has tripled open interest in the product.

The consumer staples ETF has outperformed since the general market peaked on Sept. 14, says Investors Intelligence technical analyst Tarquin Coe. This is an indication of “the ongoing defensive rotation,” he said.

Meanwhile, momentum suggests the fund isn’t overbought which “should permit a break to new highs even if the general market remains stagnant,” Coe added.

Consumer Staples Select Sector SPDR

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.