Tug-of-War in the Materials Sector

 |  Includes: DOW, FCX, MON, XLB
by: optionMONSTER

By David Russell

Companies such as miners and chemical producers have been slammed by concerns about the economy, and now traders are divided about whether it's time to bet on a rebound or further bloodletting.

XLB Chart

optionMONSTER's tracking systems detected unusual activity in the Materials Select Sector SPDR (NYSEARCA:XLB) exchange-traded fund, whose largest holdings include Monsanto (NYSE:MON), Freeport-McMoRan Copper & Gold (NYSE:FCX), and Dow Chemical (NYSE:DOW).

In the largest trade, an investor unloaded an existing position in 15,000 of the July 32 puts for $4.05 and purchased 18,000 September 28 puts for $2.02. The transaction let him or her recover $2.44 million of premium while obtaining an additional two months of downside exposure to the fund.

XLB fell 0.71% to $28.01 in afternoon trading. It's down 15% so far this year, making it the worst-performing of the SPDR funds that track major industry groups in the S&P 500. Last year it was the second best, trailing only technology.

Another trader was more optimistic, selling 10,000 September 24 puts for $0.77 and buying 10,000 September 34 calls for $0.13. The trade will simulate a long position but will make money only if the XLB climbs over $34. It also won't lose money unless it falls below $24.

The other active strike was the August 28 puts, which got bought about 10,000 times for $1.51 to $1.53 against open interest of 707 contracts.

Overall options volume in XLB is more than 4 times greater than average so far today.

(Chart courtesy of tradeMONSTER)