Trade view /
13 June 2016 at 11:13 GMT
We are initating this $2-wide bearish put vertical in the consumer discretionary sector using the SPDR exchange-traded fund (XLY). The shares rallied with the rest of the market and appear to be heading down.
Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more Among the sectors top holdings are Amazon (12%), Home Depot, Disney and so on. Shares of the Seattle-based company have surged 50% since making a low of $474 in February and should be a prime candidate for profit taking.
Volatility is slightly higher (beta of 1.09) on the ETF than the overall market (S&P 500) and we expect bigger moves. Implied volatitility has been near 52-week low and any rise will benefit this vertical put spread.
With the underlying price closing on Friday at $78.49, this long put spread 79/77 would only require a small downturn to become profitable. Moreover we are within a hair from $78.25 ($79-$0.75) which is the breakeven point for the trade
Management and risk description
We are risking our initial investment of $0.75 to make $1.25, which is a good risk/reward outcome for a directional trade.
Being a defined risk strategy, you should allocate an amount you are comfortable losing.
Buy +1 XLY 15 JUL 16 79/77 put @ .77 (to open)
Buy +1 XLY 15 JUL 16 79 Put at $1.72 (mid between bid/ask)
Sell -1 XLY 15 JUL 16 77 Put at $0.97
Net Debit $0.75
Maximum gain (@exp) = $1.25
Maximum loss (@exp) = $0.75
Entry: Today, as two indvidual orders (BPO and SPO)
Stop: no stop
Target: $77 or lower
Time horizon: 20-30 days
XLY 5-year chart:
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more