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Materials sector at center of tug-of-war

By: optionMONSTER
Posted: 7/2/2010 2:23:00 PM
Referenced Stocks: DOW;FCX;MON;XLB

Companies such as miners and chemical producers have been slammed by concerns about the economy, and now traders are divided about whether it's time to bet on a rebound or further bloodletting.

optionMONSTER's tracking systems detected unusual activity in the Materials Select Sector SPDR ( XLB ) exchange-traded fund, whose largest holdings include Monsanto, Freeport-McMoRan Copper & Gold, and Dow Chemical.

XLB Chart In the largest trade, an investor unloaded an existing position in 15,000 of the July 32 puts for $4.05 and purchased 18,000 September 28 puts for $2.02. The transaction let him or her recover $2.44 million of premium while obtaining an additional two months of downside exposure to the fund.

XLB fell 0.71 percent to $28.01 in afternoon trading. It's down 15 percent so far this year, making it the worst-performing of the SPDR funds that track major industry groups in the S&P 500. Last year it was the second best, trailing only technology.

Another trader was more optimistic, selling 10,000 September 24 puts for $0.77 and buying 10,000 September 34 calls for $0.13. The trade will simulate a long position but will make money only if the XLB climbs over $34. It also won't lose money unless it falls below $24.

The other active strike was the August 28 puts, which got bought about 10,000 times for $1.51 to $1.53 against open interest of 707 contracts.

Overall options volume in XLB is more than 4 times greater than average so far today.

(Chart courtesy of tradeMONSTER)