During the abbreviated session before the July 4th market holiday, we saw interesting options activity in XLB (SPDR Basic Materials, Expense Ratio 0.18%, which is a $2.8 billion fund at the moment.

We saw call selling and put buying in the product (sellers of September 41 strikes while purchasing September 35 puts) and this is unquestionably bearish looking activity in this sector ETF, which has its highest weightings in MON (11.79%), DD (10.49%), DOW (8.41%), PX (6.97%), and FCX (5.95%).

Many of these component stocks are slated to release quarterly earnings in the near term (DD on 7/23, DOW on 7/25, PX on 7/24 for instance) so it is evident that there is some concern among these options investors in terms of short term prospects for this sector.

XLB has lagged the broad market notably year to date, in the trailing one year period, as well as in the past month, with top holding MON recently falling as low as $96.38 on an intraday basis before recovering somewhat around its 200 day MA ($97.41).

XLB is the largest sector oriented ETF focusing on “Materials”, but other names to watch in the next several weeks given the action in this sector and pending earnings reports include VAW (Vanguard Materials, Expense Ratio 0.14%), IYM (iShares DJ U.S. Basic Materials Sector, Expense Ratio 0.48%), MXI (iShares S&P Global Materials, Expense Ratio 0.48%), FXZ (First Trust Materials AlphaDEX, Expense Ratio 0.70%), and PYZ (PowerShares Dynamic Basic Materials, Expense Ratio 0.60%) to name a few.

SPDR Basic Materials