Breaking Down the Big Bearish Options Spread on Retail

The retail ETF is headed toward its third straight weekly loss

It's been a rough month for retail stocks, with dismal earnings reports from several high-profile names, including Lowe's (LOW) and Foot Locker (FL), driving the SPDR S&P Retail ETF (XRT) toward its third straight weekly close, down 2.3% since last Friday. One options trader today is positioning for more downside in the sector, and likely rolled their bearish bet down and out.

By the numbers, more than 48,000 XRT puts have changed hands today -- almost six times what's typically seen at this point, and 43 times the number of calls traded. According to Trade-Alert, the bulk of the volume occurred when one speculator closed out their June 40-44 put spreads, then bought to open the July 38-41 put spreads. If this is the case, the speculator expects XRT -- which was last seen trading at $41.66-- to fall all the way to $38 by July options expiration.

This bearish positioning is just more of the same for XRT options traders. Over the past 20 days, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 3.30 puts for each calls.

Echoing this put-heavy backdrop is the exchange-traded fund's (ETF) gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 4.95. This shows that near-the-money puts comfortably outweigh near-the-money calls among options expiring in three months or less.