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Traders Are Betting On A Big Decline In This Consumer Staples ETF

Monday, October 31, 2016 8:41
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magnifying-glassAnalyst Paul Weisbruch delves into some interesting options activity in a well-known consumer ETF, along with some other related funds that investors should be keeping an eye on.

Late last week, we saw significant put buying in the Consumer Staples Select Sector SPDR ETF (NYSE:XLP) (Expense Ratio 0.15%) consisting of January 52 strike activity. This is notable given the fact that the options are only about 1.4% out-of-the-money at present levels in the fund, so traders seem to be betting on a price decline over the next few months.

XLP is the largest “Consumer Staples” based ETF in the U.S. listed landscape with $8.1 billion in assets under management, including net inflows year-to-date of about $450 million. The fund is considerably larger than its next two largest competitors VDC (Vanguard Consumer Staples, Expense Ratio 0.12%, $3.3 billion in AUM) and FXG (First Trust Consumer Staples AlphaDEX, Expense Ratio 0.67%, $2.1 billion in AUM). RHS (Guggenheim S&P 500 Equal Weight Consumer Staples, Expense Ratio 0.40%, $605 million in AUM) and IYK (iShares U.S. Consumer Goods, Expense Ratio 0.43%, $593 million in AUM) are several other popular mainstream ETFs in this space that most portfolio managers are acclimated with.

With about 63% of the portfolio concentrated across the top ten individual equity weightings in the basket in XLP, we see top holdings as follows: 1) PG (12.84%), 2) KO (8.82%), 3) PM (8.09%), 4) MO (5.99%), and 5) WMT (5.86%). We mentioned in a previous piece that a proposed takeover in the Tobacco space involving British American Tobacco and Reynolds American fueled speculation about a possible PM and MO reunification. Given the appetite for puts here in XLP we are also watching SZK (ProShares UltraShort Consumer Goods, Expense Ratio 0.95%, $4.1 million in AUM) which has seen a noticeable uptick in volume since September.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch
paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.

Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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