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May 21, 2013  Tue 4:14 AM CT

The SPDR S&P Retail Fund has risen to record levels, but one trader apparently believes that it is due for a pullback.

optionMONSTER's Depth Charge system shows that a trader bought 5,000 June 77 puts for their ask price of $1.23 and sold 10,000 June 74 puts for their bid price of $0.54. The volume was well above the previous open interest of around 2,300 contracts in each strike, indicating that this is a new vertical spread.

The spread--also known as a ratio because one leg is twice as large as the other--cost just $0.15 to open, which is the maximum amount at risk if the XRT remains above $77. The maximum gain would be realized if it is right around $74 at expiration, as there is a time decay factor involved in the trade as well. (See our Education section)

The XRT finished yesterday at $78.11, up 0.46 percent, a record closing high. The exchange-traded fund was down at $54 at the start of the month, but it has been trending higher from support at $60 from the very end of 2012.

Yesterday's total option volume in the XRT topped 30,000, which is more than twice its daily average for the last month.
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Using puts to BUY stock

Puts are an options contract that gives buyers the right to sell their stock for a set price on or before a future date. However, puts can also be an effective way to BUY stock.

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