ETF Trends
ETF Trends

This is the time of year when many investors expect the consumer discretionary sector to be a solid bet and data suggest some traders are making related bets on the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY). XLY is the largest exchange traded fund tracking the consumer discretionary sector.

XLY is up about 16% year-to-date, a performance owed in large part to the ETF’s almost 17% weight to Amazon.com Inc. (NASDAQ: AMZN). That is more than double the weight allocated to XLY’s second-largest holding.

Early Thursday, “roughly 3,600 calls had traded on XLY, two times what’s typically seen. By contrast, a lower-than-expected 109 put contracts were on the tape. The March 95 call is once again most active — echoing yesterday’s intense options trading,” according to Schaeffer’s Investment Research.

As the market moves toward the late stages of the business cycle, consumer discretionary stocks and sector-related exchange traded funds could underperform other market segments. However, it is clear XLY is rebuffing that idea this year. XLY holds 85 stocks and tracks the Consumer Discretionary Select Sector Index.

“Widening the scope reveals call buying has been quite popular across the major options exchanges in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), XLY’s 10-day call/put volume ratio of 10.74 ranks in the 100th annual percentile, pointing to an extreme preference for long calls over puts,” according to Schaeffer’s.

Earlier this month, index providers S&P and MSCI revealed they will be altering the telecom sector and renaming it communication services, meaning some of the media stocks currently held in XLY and rival cap-weighted consumer discretionary ETFs will leave that sector for the new communication services group. XLY allocates 22.3% of its weight to media stocks, its second-largest industry behind Internet retail.

Rivals to XLY include the Vanguard Consumer Discretionary (NYSEArca: VCR) and Fidelity MSCI Consumer Discretionary Index (NYSEArca: FDIS).

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

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.