We recently closed a short biased trade in the retail etf XRT for a small loss. We got the direction too right and didn’t have the proper trade structure on for the quick correction in US equities that was around the corner. (we had a fly targeting a few percentage points lower before it cratered).
With the market having bounced back from panic lows last week it’s a good time to revisit this thesis. (we recently re-entered a QQQ short after the bounce with the same idea)
XRT is at a precarious spot on its chart. Following the bounce back from last week’s panic lows, the etf got as high as $94, representing only about an 8% correction off of the highs of the Summer. With the etf retracing some of that bounce it’s now down a little more than 10%. And today it’s testing support at 92 (green line):[caption id="attachment_56534" align="aligncenter" width="714"] 1 yr XRT from LiveVol Pro[/caption]
Like XBI this is one we’d love to target on a slight bounce from here as we feel most rallies are to be sold until proven otherwise. If we sawthis a bit higher on a bounce (it’s hard to press an etf down 2% on the day) we’ll look to buy a put spread targeting at least 88 over the next few months. Like XBI earlier, implied vols mean entries are crucial. XRT implied vol is 26 in October, 10 points higher than it was in early August:[caption id="attachment_56535" align="aligncenter" width="732"] XRT 1 yr IV30 vs HV30 from LiveVol Pro[/caption]
Right now the Oct 92/87 put spread is about 1.85. On a bounce if we could get that closer to 1.50 we’d be interested. Stay tuned.