Bearish – XLY $121.34 – Consumer Discretionary
The S&P 500 (SPY) made a break above its major $302.50 resistance level last week and has continued to climb since. Markets have been propelled higher on the potential trade war resolution, lowered corporate profit expectations and a lower interest rate. Markets may continue higher but have now reached overbought with an increased risk of a short-term pullback.
XLY Trade Idea:
On CNBC’s OptionsAction show on Friday, Carter Worth suggested that the consumer sector has a risk of a pullback. The consumer sector has a few companies that make up a large weight, many of which have underperformed recently. Expecting a possible move lower on a market stumble, Michael Khouw, suggests buying a Jan $121/$113 Call Vertical for a $2.00 Debit. As of Friday’s close, these calls were trading at $1.95. OptionsPlay suggests managing risks by cutting losses if the price of the option falls to about $0.97.
We’ve structured this trade in OptionsPlay so you can analyze and view this trade along with the supporting technical chart at your convenience. You can also view the Options Action’s video by clicking on the following link: XLY OptionsAction Video
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