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Carter Worth And Mike Khouw's XLY Trade

Craig Jones

On CNBC's "Options Action," Carter Worth spoke about the recent rally in Consumer Discretionary SPDR (NYSE: XLY) and suggested that traders should short it after such a move higher. He compared XLY with an equally weighted consumer discretionary sector and concluded that the spread between the two has never been so wide. He sees that as a good enough reason to take a short position in XLY.

Mike Khouw suggested an options strategy to make a bearish bet. He wants to buy the June $105/$90 put spread for $2.95. The trade breaks even at $102.05 or 9.63% below the closing price on Friday. It can maximally make a profit of $12.05 if the stock drops to $90 or lower at the June expiration.

Tony Zhang said that the catalyst that Khouw and Worth are looking for may not come for some time, because Amazon.com, Inc. (NASDAQ: AMZN) is reporting earnings at the end of April and Home Depot Inc (NYSE: HD) toward the end of May, and they are almost a third of the XLY. He likes the trade, but he would also sell a call spread with an expiration in May to collect some premium.

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