What Does Consumer ETF Put Selling Mean?

| About: Consumer Staples (XLP)
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By Chris McKhann

Traders are selling puts, as the Consumer Staples Select Sector SPDR (NYSEARCA:XLP) is 6 percent above the support it bounced off of a month ago.
XLP Chart

The XLP has an average daily options volume of 6,600 contracts, but today 47,000 puts are trading at the June 26 strike alone. These have changed hands in large blocks, most of them selling for for $0.35 against open interest of 9,331 contracts. Thus, many investors are opening new positions.

Shares of the ETF are up slightly today at $27.54, just off the 52-week high of $27.62 they set yesterday before falling later in the day. Shares found support around $26 a month ago, a technical level that has held up since October 2009.

This put selling expresses the view that the implied volatility of the puts is too high, now at 15.4 percent. That may sound low, but the average is 12.5 percent, a new 52-week low.

The 30-day historical volatility is at 10.5 percent, near the high end of the range forthe last six months. The 20-day reading is down, at 7.8 percent.

Disclosure: No positions