Bulls Turn to Materials on Pullback

By Pete Najarian, co-founder of OptionMonster

NEW YORK -- The recent market selloff has brought materials stocks lower and now they're gaining some attention.

OptionMonster's tracking systems Tuesday detected unusual activity in the Material Select Sector SPDR Fund ( XLB), which has fallen from near $40 to about $37.50. Traders focused on the April 40 calls, paying mostly 17 cents on more than 5,000 contracts.

Those options lock in the price where the stock can be bought, so they will generate some nice leverage if the fund rallies. But they will expire worthless if the shares don't move by mid-April.

The exchange-traded fund opened higher, stayed green all day, and closed higher by 1.07% at $37.75. It includes large holdings in companies such as Monsanto ( MON), DuPont ( DD), Dow Chemical ( DOW) and Freeport-McMoRan Copper & Gold ( FCX).

The fund's total option volume Tuesday was more than triple its daily average for the last month. There were also some puts traded, but those appear to be closing positions.

Najarian owns XLB calls.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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