By Kaitlyn Kiernan

Retailers have been the strongest performing industry group this year, outperforming the S&P 500 by 15%, but that hasn't deterred bulls optimistic that the sector will continue to shine into the New Year.

Trading in bullish options contracts on SPDR S&P Retail exchange-traded fund, known by its ticker symbol XRT, has been strong in recent sessions, despite strong gains already this year.

The SPDR S&P Retail fund added 38 cents, or 0.4%, to $87.22 Tuesday, while the S&P 500 industry gained 0.2%. XRT is up 39.7% this year, compared to 40.6% for the sector. Some of XRT's biggest holdings include Rite Aid Corp. (RAD), Amazon.com Inc. (AMZN) and The Men's Wearhouse Inc. (MW)

Option trading on XRT is typically dominated by volume in generally bearish put options, which secure the right to sell shares at a set price by a designated date. But over the past week, the fund has seen strong volume in call options, buyers of which look for shares to rise to profit.

So far this year, the sector has averaged 5.2 bearish puts traded for every call. But over the past nine sessions, that ratio has dropped to 1.2 to one. Put options can also act as a portfolio hedge, but securing an exit price on an existing stock position.

That helped push the total number of bullish contracts outstanding at November contract expiration to its highest level since June, when the ETF was up 24.8% so far in the year.

Seasonal trends and earnings reports still due from retail companies should help the ETF higher, said Jim Strugger, derivatives strategist at MKM Partners.

"We think the momentum can continue," said Mr. Strugger, who said nearly 50 XRT components, or about half of the ETF, have yet to report third-quarter results. Mr. Strugger recommended Monday clients buy January call options, which secure the right to buy stock at a set price, for exposure to further gains.

But not all are as optimistic. Amy Wu, equity derivatives strategist at RBC Capital Markets in New York, points out that with the Thanksgiving holiday late in 2013, fewer shopping days between then and Christmas could hurt the sector.

Now is a good time to hedge XRT positions with options that protect against a decline in shares, Ms. Wu said, as the prices of such options haven't yet been bid higher.

Despite the rise in recent days in bullish trading, the number of existing bearish options positions still outpaces that of bullish ones. The largest monthly options contract outstanding Tuesday was January $80 put options, which would protect against or profit from a decline below that level-or a more than 7.9% drop-by mid-January.

Write to Kaitlyn Kiernan at kaitlyn.kiernan@wsj.com