Market News

January 3, 2017  Tue 8:22 AM CT

Industrials have pulled back from all-time highs reached early last month, and traders are positioning for more potential declines.

Industrial stocks were among the biggest winners on hopes of infrastructure initiatives after the election of Donald Trump as president, but the sector has cooled off in recent weeks. Our tracking systems detected two downside trades in the SPDR Industrial Fund on Friday, first outright put buying and then a bearish vertical spread:

  • 10,200 February 62 puts were bought for $1.11 to $1.35 against open interest of 138 contracts.
  • 12,500 January 61 puts were purchased for $0.40 to $0.45 while 12,500 January 58 puts were sold for $0.09 and $0.10 in volume far above open interest in both strikes.

In addition, U.S. Steel--a major basic materials stock to benefit from the so-called Trump rally, saw 7,700 January 32.50 puts bought mostly for $1.07 to $1.35 against open interest of 275 contracts.

Long puts lock in the price where a stock can be sold, so they make money if shares decline. Investors use them to hedge long positions or to speculate on a drop. Bearish spreads sell puts to lower the cost of the trade but require the purchase of stock if it falls to a certain level. (See our Education section)

XLI fell 0.35 percent to $62.22 on Friday but is up 8 percent in the last three months. Overall option volume was 3 times greater than average, and puts outnumbered calls by a bearish 11-to-1 ratio.

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