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Bullish Plays Crop Up In Consumer Staples ETF Call Options

 April 17, 2012 02:23 PM

(By Andrew Wilkinson) Consumer Stapes Select Sector SPDR Fund (XLP)– Options activity on the Consumer Staples SPDR in the first 10 minutes of the session suggests one strategist is long-term bullish on shares in some of the largest and most well-known U.S. companies. Shares in the XLP are up 1.0% today at $34.11, just off the ETF's record high of $34.42, as U.S. equities move broadly higher. The XLP's top 10 holdings, which make up nearly 70% of the fund, include Dow heavyweights the likes of Procter & Gamble, Coca-Cola and Wal-Mart Stores. Coca-Cola, the fund's second-largest holding, is up nearly 3.0% this afternoon after the Company reported better-than-expected first-quarter results. The long-dated options position established on the ETF this morning stands to benefit from substantial bullish movement in the price of the underlying over the next year and eight months to expiration. It looks like the trader responsible for the transaction purchased a block of 10,000 calls at the Jan. 2014 $37 strike for a premium of $0.89 apiece. Profits are available on the position at expiration if shares in the XLP climb 11.0% to top a new record high of $37.89. A couple of hours into the trading day the same-strike call expiring in January 2013 was purchased 26,600 times at a premium of $0.23 each.

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Wal-Mart Stores, Inc. (WMT) – The value of a sizable bullish bet initiated in Wal-Mart call options yesterday ballooned overnight, as shares in the retailer extend their run to the upside for a second straight day. Shares in WMT are currently up 2.05% at $61.81 as of 11:35 a.m. in New York, the highest since mid-February, on positive U.S. same-store sales data. On Monday, WMT popped up on our market scanners after a large block of 7,242 April $60 strike calls traded at the asking price of $0.51 per contract. The jump in open interest overnight indicates the transaction was an opening position. Assuming the calls were purchased to play out bullish expectations for the shares, rather than, say, a hedge related to short stock, the call buyer has more than tripled his or her money overnight with the contracts today trading around $1.85 apiece.

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Shutterfly, Inc. (SFLY) – Shares in the operator of Shutterfly.com and Tinyprints.com are continuing to recover from the sharp pullback spurred last week by Facebook's agreement to purchase photo-sharing app, Instagram. SFLY rallied as much as 3.8% this morning at $30.26, but put spreads initiated on the stock this morning suggest recent gains may be short lived. Bearish trades on SFLY may pay off if the stock reverses recent gains in the aftermath of the Redwood City, California-based company's first-quarter earnings report next Friday. It looks like one or more traders purchased 2,000 puts at the May $30 strike and sold the same number of puts at the lower May $25 strike, all for a net premium outlay of $1.75 per contract. Profits are available on the strategy in the event that shares in Shutterfly decline 5.1% from the current share price of $29.77 to breach the effective breakeven point at $28.25, while maximum potential profits of $3.25 accrue to the downside should the stock drop 16.0% to settle below $25.00 by expiration next month.



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