<\/p>\n
Materials have quietly climbed this year. <\/p>\n
At the same time, the options tied to the sector have gotten cheaper, trading closer to their five-year low than their five-year average. <\/p>\n
That combination caught the eye of a well-known CNBC options strategist, who now sees a rare setup forming.<\/p>\n
His view is simple. When a sector is rising and the cost to trade it is falling as well, patient investors get a chance that does not appear often.<\/p>\n
Here is what he sees and where the trade can go wrong.<\/p>\n
Why a top analyst is watching the XLB materials ETF right now<\/p>\n
Michael Khouw, chief strategist at OpenInterest.PRO and a familiar face on CNBC, told viewers that the materials sector deserves a fresh look.<\/p>\n
His focus is the State Street Materials Select Sector SPDR ETF (XLB), the most widely traded fund that tracks materials stocks in the S&P 500. <\/p>\n
More Materials and ETF Stocks:<\/p>\n
Gold’s wild 2026 ride might not be over yet<\/p>\n
Popular ETFs carry hidden tax rules that surprise retail investors<\/p>\n
Vanguard ETF offers simple path to $1 million<\/p>\n
It charges a low 0.08% expense ratio and holds 28 stocks.<\/p>\n
XLB has gained close to 17% so far in 2026, beating the S&P 500, CNBC reported.<\/p>\n
The fund closed at $53.54 on Aug. 21, StockAnalysis data show, near its 52-week high of $54.14.<\/p>\n
A rising fund’s options usually get more expensive. Here, they got cheaper. That difference is what makes the setup stand out.<\/p>\n
What’s actually pushing materials stocks higher<\/p>\n
Two forces are lifting the sector.<\/p>\n
The first is the artificial intelligence buildout. Every new AI data center needs vast amounts of copper, specialty chemicals, and construction materials.<\/p>\n
A single one-gigawatt AI data center requires roughly 50,000 tonnes of copper, Yahoo Finance reported, and hyperscalers are building many of them.<\/p>\n
The second force is money and policy. <\/p>\n
Concerns about government deficits have kept inflation worries alive, and hard assets like copper and gold tend to hold up well when the dollar’s purchasing power is in question.<\/p>\n
That backdrop has already helped gold and copper miners. <\/p>\n
Freeport-McMoRan (FCX) reported second-quarter 2026 revenue of $7.03 billion, which beat expectations. <\/p>\n
Copper hit an all-time high on the COMEX exchange on Aug. 12, Yahoo Finance reported, with inventories falling for over 40 straight days.<\/p>\n
Simply put, the same AI and inflation themes driving tech and gold headlines are now driving demand for raw materials.<\/p>\n
Copper and construction materials sit at the center of the AI data center buildout, driving demand across the materials sector.<\/p>\n
Jordi Salas \/ Getty Images<\/p>\n
Why the options market is handing investors a discount<\/p>\n
Here is the part Khouw finds unusual. The cost to trade XLB has dropped, even as the fund has climbed.<\/p>\n
That cost is measured by implied volatility, a number that tells you how expensive an option contract is. When it falls, options get cheaper to buy.<\/p>\n
Right now, one-month implied volatility on XLB sits at barely over 14%, CNBC reported.<\/p>\n
How cheap are XLB options vs. history?<\/p>\n
Over the past five years, XLB’s implied volatility has looked very different:<\/p>\n
Five-year average: 19.5%<\/p>\n
Five-year high: 47.25%<\/p>\n
Five-year low: 11.8%<\/p>\n
At about 14%, options are priced much closer to their five-year floor than to the average.<\/p>\n
For investors, cheaper options mean a smaller upfront cost and a smaller amount at risk on a directional bet.<\/p>\n
What the trade looks like in plain numbers<\/p>\n
Khouw laid out a straightforward example so readers can see the math.<\/p>\n
Khouw’s example is the September $52.50 call, which recently cost about $1.00 per contract. That $1.00 is the most a buyer can lose, and it’s less than 2% of the fund’s price.<\/p>\n
To break even, XLB just needs to reach $53.50 within four weeks. That’s a move of less than 2%.<\/p>\n
Because premiums are so low, Khouw noted that traders do not need complex strategies to offset cost. A simple call does the job.<\/p>\n
Khouw also has an idea for investors who expect the sector to drop. <\/p>\n
Buy a September $52.50 put instead of a call. It costs about the same and caps your loss at that same small amount. He said it’s a safer bet against the sector than shorting the ETF.<\/p>\n
What you give up by owning only one sector<\/p>\n
XLB isn’t evenly spread across the sector. A handful of stocks make up a large share of the fund.<\/p>\n
Linde (LIN) makes up about 12.94% of the fund, with Newmont (NEM) near 7.13% and Freeport-McMoRan near 5.62%, StockAnalysis shows.<\/p>\n
Related: Top European bank has a message for investors on gold price<\/p>\n
The top 10 names account for roughly 58% of the fund. So a move in a few big stocks can swing the whole position.<\/p>\n
That’s why this trade works best alongside a diversified portfolio, not a replacement for one.<\/p>\n
The risk that can wipe out the whole trade<\/p>\n
Options carry a hard deadline that stocks do not, and that deadline can erase your money.<\/p>\n
Every option loses value as time passes, a process traders call time decay. <\/p>\n
If XLB stays flat over the next few weeks, the contract can expire worthless. In that case, a buyer loses 100% of the premium paid on the trade, even if the shares themselves barely move.<\/p>\n
3 things to weigh before placing this trade<\/p>\n
You need direction and timing. The fund has to move your way before the option expires, not just eventually.<\/p>\n
Cheap does not mean safe. Low premiums lower the risk, but the entire premium can still go to zero.<\/p>\n
Size it small. Treat it as a limited-risk add-on to a core portfolio, not a central holding.<\/p>\n
Where materials go from here<\/p>\n
A rising sector with cheap options gives investors a way to participate at limited risk.<\/p>\n
The catalysts behind it, AI construction and inflation-driven demand for hard assets, are shaping much of the 2026 market.<\/p>\n
Whether XLB pushes past its 52-week high depends on copper and chemical demand staying firm and the AI buildout keeping its pace. Neither is guaranteed, and a stall in data center spending would take pressure off the trade.<\/p>\n
The takeaway for readers is simple. The sector is worth a second look, as long as you size the position carefully and know your exit before you get in.<\/p>\n
Related: Jim Cramer sees trouble brewing for stock market <\/p>\n
#Top #analyst #investors #overlooked #sector<\/p>\n","protected":false},"excerpt":{"rendered":"
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