Options Bears Target Retail ETF

Investors often think of this time of year as being favorable for retail equities and exchange traded funds such as the SPDR S&P Retail ETF (NYSEArca: XRT). The market has other ideas as highlighted by XRT’s 13% fourth-quarter loss heading into today.

Some options traders are pouncing on the retail ETF as it declines below key long-term support. XRT is about 10% below its 200-day moving average.

“Digging into today’s options activity, more than 29,000 put options have traded, dwarfing the roughly 4,800 calls that have crossed, and already doubling the daily average,” according to Schaeffer’s Investment Research. “New positions are being opened at the December 44 put, with traders likely eyeing a move below $44 from the ETF in the coming weeks. The March 39 and January 2019 40-strike puts are also seeing notable volume.”

Key Data Points

Amid October’s market volatility, the latest retail sales data in October showed a 0.8% rise as purchases of motor vehicles and building materials led the way after the less-than-stellar September data. September saw a mild rise in retail sales, edging higher by 0.1%, but below the 0.6% rise forecasted by a Reuters poll of economists

The spate of bankruptcies from brick-and-mortar retails stores could be spooking investors as companies like Sears Holdings filed for bankruptcy protection last month after 125 years in business. However, some data points could support an uptick in consumer spending. Additionally, the falling oil prices, which are expected to drag down gasoline prices, could also bolster sales as consumers are left with more discretionary money to spend.

“Near-term options traders had been targeting puts before today, too. XRT’s Schaeffer’s put/call open interest ratio (SOIR) stands at 3.81, showing put open interest almost quadruples call open interest among contracts expiring within three months. What’s more, this reading is in the 82nd annual percentile, confirming such a put-skew is uncommon,” notes Schaeffer’s.

Investors have pulled $87.43 million from XRT in the current quarter.

For more information on the consumer sector, visit our consumer discretionary category.