Utilities ETF draws large bullish option trade

*Utility ETF attracts large bullish options trade

*Traders aggressively buy calls in some SPDR ETFs

By Doris Frankel

CHICAGO, March 11 (Reuters) - For the second time in nearly a week, a large bullish options trade was implemented in an exchange-traded fund tracking the performance of utility companies.

A very large investor on Wednesday turned up in the Utilities Select Sector SPDR fund (XLU.P) or XLU and snapped up nearly 100,000 call options, conveying the right to buy the fund's shares at $26 apiece by September expiration.

"The trade was likely coupled with the underlying shares of the fund and could have been a hedge or speculative in nature, with the investor possibly looking for a rebound in the utility sector," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Connecticut.

The transaction was strikingly similar to last Thursday's purchase of 150,000 April $25 call options for 45 cents a contract when the utility ETF was trading near $23.11, said Trade Alert president Henry Schwartz.

The latest call activity comes hand-in-hand with a number of recent large bullish trades in some ETFs that cover key sectors of the U.S. economy

Shares of the XLU, which holds companies such as Exelon Corp (EXC.N), Southern Co (SO.N) and Duke Energy Corp (DUK.N), fell 4 cents to $23.

The initial trade in the September $26 strike call was broken earlier in the session. Then blocks of 48,171 contracts were bought, one for $1.10 a contract and the other for $1.05, said Chris McKhann, analyst at Web information site optionmonster.com.

"If the economy starts to turn around, more power usage should be a leading indicator. These XLU positions are well placed to take advantage of that," said Victor Schiller, president of stock and options research firm Investors Observer in Virginia.

"As the power companies that are part of the XLU ETF generate more profits, XLU should rise."

An outright call buyer of the $26 XLU calls would need to see the XLU rise by at least 17 percent by September expiration before making a profit with shares traded at $23.07.

Counting Wednesday's trade, the number of call contracts outstanding in the utility ETF would amount to 292,000, almost 10 times what it was at the start of March and the highest ever on record, Trade Alert's Schwartz said.

Traders have been heavily buying call options in other sector ETFs.

In the SPDR S&P Home Builders ETF (XHB.P), a large block of upside June $12 calls was purchased on Wednesday totaling 90,000 contracts, Schwartz said. Those calls were nearly $3 out-of-the-money as XHB shares ended at $9.28.

Last Thursday, the Industrial Select Sector SPDR (XLI.P) attracted a buyer for 250,000 call options expiring in April at the $18 strike price .

Investors find it more efficient to buy shares of an ETF because it lets them spread the risk over several underlying companies in a sector. Also, an ETF can sometimes be more liquid than the underlying stocks, Schiller said.

Because ETF options can be used in a variety of ways, the call buying in these ETFS could be a hedge for large short positions either in the underlying ETF or their underlying components, McKhann said.

(Reporting by Doris Frankel; Editing by Diane Craft)