The largest ETF option blocks yesterday traded just after 11:15ET, when more than 52,000 downside February puts on the SPDR Industrials ETF (XLI) and the SPDR Basic Materials ETF (XLB) were bought for $0.05. Open interest data today indicates that both blocks were opening. In fact, the February 35 puts on XLI and the February 34 puts on XLB are now the two largest open interest positions in the two products, potentially hedging more than $400 million of notional value over the next 30 days.
Separately, large blocks have traded on the SPDR Financial Fund ETF (XLF) this week. The largest was a 45,000-lot of January 2014 20 calls which traded yesterday at $0.26 per contract when the market was $0.26 to $0.29. Today's open interest numbers indicate a closing trade, and an investor might have been liquidating a bullish position on diminishing expectations for a rally beyond $20 in XLF through the January 2014 expiration. Beyond that, the next biggest trades in XLF yesterday included a buyer of 35,000 April 16 puts for $0.29 per contract and, separately, 20,000 March 17 puts for $0.44 each. Both were opening.
The flow in XLF Monday was also impressive, as 64,000 April 16 puts were bought on the ETF for $0.32 in the morning and then 32,600 more for $0.30 late in the day. The activity created nearly 100,000 in open interest in the contract and, with 300,000 in open interest, the April 16 put is now the second largest block of open interest in the name (behind the soon to expire January 15 puts).
Also on Monday, our systems detected bearish put spread trading in a number of economically-sensitive ETFs. The activity was focused in the March term. The biggest was in the SPDR Homebuilder Fund ETF (XHB) after a March 24 - 26 put spread traded for $0.33, 17,000 times. Open interest indicates that the spread was rolling up in strikes, and apparently selling to close the 24s while opening in the 26s. XHB was up $0.21 to $27.87 Tuesday. Also on Monday, a March 45 - 47 put spread traded on the SPDR Consumer Discretionary Fund ETF (XLY) for $0.22 per contract and was also rolling up in strikes. XLY was up $0.36 to new 52-week highs of $49.35 yesterday. Finally, a March 56 - 62 put spread was opened in the SPDR Retail Trust ETF (XRT) Monday for $0.97, 8000 times. XRT shares jumped $1.32 to $64.54 on Tuesday on the heels of the latest monthly retail sales data.
The large blocks of puts in XLB, XLI, and XLF, as well as the spread trading in XHB, XRT, and XLY, are short-term bearish positions that will pay off if the equity markets make a move lower in the near future. It's probable that portfolio managers initiated some of these trades against stock positions to hedge short-term risk. Nevertheless, the overall flow seems somewhat defensive and reflects the view that the S&P 500 might soon pull back from its five-year highs.
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