By Jud Pyle, CFA, chief investment strategist for the Options News Network
The news hasn't been good so far this week for retail stocks, and big put activity in the
SPDR Retail Exchange Traded Fund
today could suggest investors are hedging against a further downturn.
Looking at the Sept. 20 puts, we see that more than 15,300 of those contracts changed hands for around $1.00 vs. open interest of 18,100 during the first 10 minutes of trading today. The bulk of that volume happened even earlier when one customer wasted little trading time and bought 15,000 Sept. 20 puts for 98 cents with the stock around $25.50.
What's interesting about this trade is the current stock price for XRT is up 46 cents so far today to $25.98, which is about 25% higher than the strike price.
In order for the customer to make money, the ETF needs to be trading below $19.00 at September expiration, which is the difference between the strike price and the premium the customer paid. XRT shares have not hit $19.00 since March 9, but the stock price has dropped about $1.00 since the beginning of the week.
These puts are currently down seven cents and more than 30,400 have traded so far today. Current implied volatility is 55.6.
Put-buying activity such as this does not mean investors should run out and sell all of their retail stock holdings. But it does demonstrate that at least one customer could be bearish on this sector. It is also noteworthy that several retailers are posting earnings in the next month, and the more retail stocks that miss estimates or post unexpected losses, the more bearish activity we might see.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."