Trading positive for health care ETF-11/06/2009

Options activity is turning positive for the XLV health care exchange-traded fund today as investors look for gains into the spring.

Our tracking systems detected heavy selling of the March 27 puts for $0.70 to $0.80 and buying of the March 29 calls for $1.25 to $1.40. The puts traded more than 16,000 times and the calls about half as much. Volume exceeded open interest in both strikes.

Health Care Select Sector SPDR (XLV) fell 0.17 percent to $28.98 in morning trading. After lagging the broader market for most of the year, the ETF has been outperforming in the last month.

Today's buyers may expect the sector to rebound as health-care reform efforts struggle in Congress and because it's a defensive industry group. The XLV's big holdings include Johnson & Johnson, Pfizer and Merck.

Today's options trades are designed to profit from the XLV moving higher. In the largest transaction, 3,700 calls were bought for $1.30 and 3,700 calls were sold for $0.95. The position will make a profit if the ETF closes above $29.35 by expiration and lose money below $27. Most of the other activity was broken into dozens of pieces over a 10-minute period.

Overall options volume in XLV is eight times greater than average so far today.

(Chart courtesy of tradeMONSTER)

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