It's been a hot summer on Main Street, and the consumer sectors are sitting at all-time highs.
The XLP Consumer Staples ETF is at fresh record highs and up more than 16% in 2019. Stocks like Tyson Foods, Walmart, PepsiCo and Costco have all helped carry the to new all-time highs.
The XLY Consumer Discretionary ETF has also soared to new highs thanks to breakout performances from names like Chipotle, Starbucks, Dunkin' Brands and Darden Restaurants, all of which are up more than 20% this year.
But even as a traditionally defensive area is leading the markets to new highs, options traders are betting that one piece of this hotspot consumer trade is about to cool off.
"The put volume was four times that of calls today [in the XLP]," said Dan Nathan, "Options Action" trader, Tuesday on "Fast Money." "There was an opening buyer of 10,000 of the July $59 puts, paying 62 cents for those."
Since each XLP options contract is worth 100 shares, this trader is betting $620,000 that the Consumer Staples ETF will fall below $58.38 – the break-even price of the trade – in just over two weeks.
That price would represent a decline of just about 1% from Tuesday's close, but Nathan said there's reason to believe the staples could be headed much lower.
"Next week, we're going to get a large multinational, Pepsi, reporting their Q2 earnings," said Nathan. "The implied movement in Pepsi is about 3%."
"[Pepsi] broke out earlier this year and just kept on going, but I'll throw Pepsi into that category again: low single-digits EPS and sales growth, trading at about 24 times [earnings]. Kind of expensive, here.
"I'm not telling you that if you think Pepsi is going to miss next week, then you go out and buy XLP puts, but XLP puts are dollar cheap, and they're volume cheap over the next couple weeks."
Pepsi and the XLP were both slightly higher Wednesday.
