XLK has seriously underperformed the broader market this year. While the S&P 500 is up 9.6% so far, more defensive sectors of the market like utilities, healthcare, and consumer staples names have powered the move to record highs. Cyclical sectors like basic materials, energy and industrials have lagged. A 25% drop on AAPL has weighed on the tech sector.
Some players in the options market appear to be positioning for a turnaround for tech. Yesterday, options volume in XLK was 2.5X the daily average. Roughly 34,000 calls and 2,500 puts traded on the ETF. The flow was heavily concentrated in May 30 calls, which are 1.4% out-of-the-money and expiring in 24 days. Buyers were paying $0.23 and $0.24 cents to open new positions. More than 28,000 XLK May 30 calls changed hands yesterday and the flow created 16,082 in new OI. At 55,990 contracts, the May 30 call is now the largest block of OI in the technology fund.
Since nine select sector funds are market value-weighted, large companies dominate the ETFs and will have a significant influence on prices action. XLK, for instance, consists of 80 different names, but the top 5 companies account for 42.5% of the value of the fund. Apple has the greatest weighting at 12.8% and there is a good chance that yesterday's bullish trading in XLK is actually a play on Apple's earnings, which are due out after the closing bell today.
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