Big Bullish Bets Placed On XLK Ahead Of Major Tech Earnings Next Month

We have seen some interesting upside call buying in the largest Technology Equity ETF in the U.S. listed landscape, XLK (SPDR Technology Select Sector, Expense Ratio 0.14%, $14.1 billion in AUM).

The February 51 strikes have been active, and noting XLK’s current $49 handle, the 51 strikes would imply about a 2.6% move higher from current levels. Given the fact that XLK is presently trading at its all-time high, it makes the options activity all the more notable.

Year-to-date, the fund has pulled in decent inflows (>$375 million in) putting it almost $4 billion ahead of its next largest rival in the space in terms of asset size, which happens to be VGT (Vanguard Information Technology, Expense Ratio 0.14%, $10.3 billion in AUM). We are also watching the related IYW (iShares U.S. Technology, Expense Ratio 0.43, $2.9 billion in AUM) and we point out that these three ETFs bare similarities in terms of their underlying index compositions.

All three funds have the same top three weightings, AAPL, MSFT, and FB, and all three of these companies are slated to report their quarterly earnings before February options expiration: AAPL is expected to report on 1/31, MSFT on 1/26, and FB on 2/1. So the calls trading in XLK may be indicative of both an “earnings” and perhaps “momentum” play, in that Technology has outperformed the broader S&P 500 not only year-to-date but in the trailing six-month period.

In terms of XLK, the weightings go as follows: while VGT features 1) AAPL (13.19%), 2) MSFT (9.49%), and 3) FB (6.42%). IYW on the other hand is populated as follows: 1) AAPL (13.41%), 2) MSFT (12.47%), 3) FB (7.30%), so in all three of these funds there is considerable representation of just two or three individual names in terms of the overall portfolio composition.

Given the nature of the options trading we have seen in XLK, it also makes sense for us to keep a close eye on several “levered Bull” funds in the space in that they may also see some out of the ordinary activity. TECL (Direxion Daily Technology Bull 3X, Expense Ratio 0.95%, $184 million in AUM) and ROM (ProShares Ultra Technology, Expense Ratio 0.95%, $118 million in AUM) specifically come to mind, but neither fund has seen a notable uptick in trading interest just yet.

The Technology SPDR ETF (NYSE:XLK) was trading at $49.66 per share on Friday afternoon, up $0.15 (+0.30%). Year-to-date, XLK has gained 2.69%, versus a 1.59% rise in the benchmark S&P 500 index during the same period.

XLK currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 54 ETFs in the Technology Equities ETFs category.