In a word, consumer staples stocks are “h-o-t”. These are companies that make or sell food, beverages, and essential “staple” items that consumers must have regardless of the state of the economy. Since the end of October, the S&P/TSX Capped Consumer Staples Index has advanced 10%.

And the fundamentals underpinning that advance seem solid. The stronger companies in this sector managed some aggressive cost cutting over the past two years. And with the economy looking healthier, revenues should jump in 2010. The combination of aggressive cost cutting and growing revenues means increased margins. Which is to say, solid profit growth which is what drives stock prices.

In Canada, there are no ETFs that focus specifically on consumer staples. As such, aggressive option traders who believe that consumer staples stocks are just beginning their run, need to look at strategies on individual companies.

Consider for example, buying calls on liquid optionable stocks like Loblaw Cos. (TSX: L), George Weston Ltd. (TSX: WN), and Shoppers Drug Mart Corp. (TSX: SC). With premiums continuing to decline (note the MX Implied Volatility Index closed Friday at 18.45%, which marks a 52-week low), option buying strategies offer better risk reward characteristics on sectors where we are anticipating growth.

With Loblaw Cos., you might look at the July 36 calls currently at $1.00 (implied volatility 18.92%). George Weston Ltd. July 72 calls at $4.00 (IV 22.03%) look interesting as do the Shoppers Drug Mart Corp. July 46 calls at $1.70 (IV 17.30%).