Back in August we highlighted Consumer Staples Select Sector SPDR (NYSEArca: XLP) amid bullish upside call buying in the ETF. Here we are now in the first week of October, and not only is the ETF trading at new all time product highs, but the bullish call buying continues even at these levels.

More than 250,000 January 38 strike calls have been accumulated in the past two sessions, and with the ETF trading with a $36 handle, the sector ETF needs to rise an additional 6% or so in order for these options players to “win” to these long call positions. [‘Massive’ Options Trade in Consumer Staples ETF]

However, when we first noticed the call activity back in late August, the ETF was trading around the $35.75 level, and although it did not follow a straight path up, the product is now registering new highs.

If XLP does in fact have a strong fourth quarter and continues to hit new highs, the calls if in the money, would give the long holder control of about 25 million shares of the ETF, which is extremely significant given the fact that the product trades only about 5.8 million shares on an average daily basis.

We believe that the activity is part of a broader theme in 2012 which has involved significant asset inflows and bullish posturing in equity sectors and names that are generally considered “defensive” and/or “low volatility”, and typically these names also yield high dividends historically when compared to benchmarks such as the S&P 500 Index.

For example, funds such as USMV (iShares MSCI USA Minimum Volatility), SPLV (PowerShares S&P 500 Low Volatility Portfolio), DVY (iShares DJ Select Dividend), and HDV (iShares High Dividend Equity) have had stellar years in terms of performance (these funds are generally at or near new highs) as well as delivering appealing dividend yields to investors.

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