Large Volume in the XLP

The Consumer Staples Sector SPDR Fund (NYSE: XLP) is seeing heavy activity this morning. The vast majority coming on the June $26 put line, where over 19,500 contracts have traded so far. One block of 3,900 contracts was bought on the offer for $0.40, followed by 15,600 contracts sold on the bid for $0.35. The ETF also saw larger than normal trading activity around that time with over 300,000 shares traded within three minutes of that options activity.

This action in the Consumer Staples Sector SPDR Fund can mean several things. One possibility could be an investor purchasing the shares as they trade near a new 52-week high and buying the puts as a hedge. Another could be a delta neutral strategy implemented at a possibly volatile point on the chart. Yet another possibility could be a trader shorting the shares and selling the puts as a covered put.

I tend to think that this was a delta neutral trade given the large number of shares traded around that action. Taking into account the delta of the June $26 put, 409,500 shares would have to be traded to make the 19,500 contracts neutral, which is very close to ETFs volume at that time.