The House’s approval last night of the Senate/White House compromise on the “fiscal cliff” will see the largest tax increase for many Americans in decades, with wealthier Americans bearing the brunt. I am not here to debate the politics of this agreement, but one fairly obvious potential by-product will likely be that those most affected (not the super wealthy, but the “working rich”), will probably scale back on spending for discretionary items and we may start to see evidence of this on Q4 earnings results in the coming weeks.
With the SPDR Consumer Discretionary ETF, the XLY, nearing all-time highs, I want to make a near term play for a reversal, as many of the component companies report what I think will be less than stellar holiday sales and give less than inspiring forward guidance.
TRADE: XLY ($48.30) Bought the Feb 48/46 Put Spread for .55
-Bought 1 XLY Feb 48 Put for .92
-Sold 1 XLY Feb 46 Put at .37
Break-Even on Feb Expiration:
-Profits btwn 47.45 and 46 make up to 1.45, with max gain of 1.45 at 46 or below.
-Losses of up to .55 btwn 47.45 and 48, with max loss of 0.55 above 48