Materials Select Sector SPDR Options (XLB): Unusual Trading Activity

| July 24, 2012 | 0 Comments

XLB OptionsOptions in the Materials Select Sector SPDR ETF (XLB) lit up our tracking system late yesterday afternoon with gigantic activity. 

Most traders were concentrating on put buying, betting the ETF will continue to move lower in price.  In fact, of the 44,000 XLB contracts that traded yesterday, all but 2,400 were on the put side.

The single most heavily traded contracts were the XLB September $30 strike put options.  Option traders purchased just over 30,000 of these put contracts at an average price of $0.30 a piece.

Now, with XLB trading substantially higher than the $30 strike price at $34.75, this trade is certainly a long shot.  However, with plenty of time until expiration, XLB certainly has a good probability of reaching that level.

So, it’s quite obvious these traders are bearish on the material sector right now.

And the more I think about it, the more it makes perfect sense. 

You see, most materials companies produce commodity products and operate in highly cyclical industries.  As a result, these companies and their stocks tend to perform poorly in a weak economy.  What’s more, they often drop sharply when investors fear an economic slowdown is coming.

So, what’s happening right now?

While the US economy has been improving gradually, it’s still not growing at pre-financial crisis levels.  And given the ongoing financial crisis in Europe and slowing growth in China, many investors are concerned the US economy could slide back into recession.

These conditions do not bode well for XLB.

Bottom line…

There’s no doubt these option traders are negative on the materials sector. 

And as we’ve heard many times before, sectors based on growth can’t rally if there are continued fears of a global slowdown or even another recession.

This is the perfect opportunity to jump in.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.