By Chris McKhann
Shares of the Materials Select Sector SPDR Fund (XLB) have jumped to their highest level since September 2008, but a big put trade is lighting up our screens today.
The XLB is up fractionally in midday trading after hitting a two-year high of $36.29 this morning. The exchange-traded fund jumped yesterday along with the rest of the equity sector and has been trending higher hitting a 52-week low near $28 in early July.
The average daily volume in the last month has been 24,000 contracts, and today almost 40,000 have changed hands. Almost all of that was in a single print as a trader bought 35,000 of the January 35 puts for $1.08. That was twice the previous open interest at that strike, so it was a new opening position.
This put buying will pay off if the XLB is below $33.92 at expiration. But the trader is unlikely to hold it until that time and should be able to book profits on the trade if the XLB falls in the near term.
This could be a straight bearish bet or a hedge on existing long shares, as it does not appear to be tied to any trading in XLB shares today. A hedge would be defensively minded but ultimately bullish, as long puts added to long stock is the synthetic equivalent to being long calls.
Disclosure: No position