Options Traders Pounce on Retail ETF During Sector Struggles

Options traders with short time frames had been targeting XRT puts even before today

Outside of tech, almost no sector is feeling the brunt of the stock market sell-off more than retail stocks, headlined by Target's (TGT) post-earnings slide. As such, the SPDR S&P Retail ETF (XRT) is seeing increased attention, with the exchange-traded fund (ETF) last seen trading down 1.8% at $44.67, falling further below the formerly supportive 320-day moving average -- and options traders could be betting on more downside going forward.

Digging into today's options activity, more than 29,000 put options have traded, dwarfing the roughly 4,800 calls that have crossed, and already doubling the daily average. New positions are being opened at the December 44 put, with traders likely eyeing a move below $44 from the ETF in the coming weeks. The March 39 and January 2019 40-strike puts are also seeing notable volume.

Near-term options traders had been targeting puts before today, too. XRT's Schaeffer's put/call open interest ratio (SOIR) stands at 3.81, showing put open interest almost quadruples call open interest among contracts expiring within three months. What's more, this reading is in the 82nd annual percentile, confirming such a put-skew is uncommon.

Unsurprisingly, anyone interesting in speculating on the SPDR S&P Retail ETF will be dealing with elevated volatility expectations. This is based on the security's 30-day at-the-money implied volatility, which has jumped to 28.4% -- ranking in the 98th annual percentile.

It could be worth noting that XRT has actually struggled to live up to options' traders high volatility expectations during the past year. More specifically, its Schaeffer's Volatility Scorecard (SVS) is just 34 out of 100, showing options traders have regularly overpriced the ETF's ability to make large swings.