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October 5, 2012  Fri 11:01 AM CT

XLY: SEE CHART GET CHAIN FIND STRATEGIES
The SPDR Consumer Discretionary Fund is on pace for a record-high close, and one large trader apparently believes that current levels will hold.

More than 33,000 XLY options have already changed hands so far today, compared to a daily average of 4,300 contracts in the last month. Almost all of the activity came in a single trade.

optionMONSTER's systems show that 31,000 October 47 puts were sold for $0.20. This volume was more was more than 10 times the open interest in the strike at the beginning of the day, clearly indicating a new position.

The XLY is up 0.74 percent to $47.82. This would be an all-time closing high, though the exchange-traded fund did see high intraday levels in mid-September up to $48.01. Shares were below $35 a year ago but broke though long-term resistance at $46 early last month.

The put sale is betting that the XLY will be above $47 when the options expire in two weeks. The trader is willing to take on the risk of having to buy the stock if it falls below that strike price. (See our Education section)
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Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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