Looks like we were not the only ones adjusting a bearish leaning position in the consumer discretionary etf, XLY today (read ours here).
Shortly before 3pm when the XLY was $73.70 a trader rolled down and out a bearish view (likely rolling a hedge):
-Sold to close 20,000 March 76/68 put spreads at 2.74 or about $5.5 million in premium and
-Bought to open 30,000 of the June 69/61 put spreads for $2.10, or $6.3 million in premium, $800,000 net roll. The new trade breaks-even at $66.90, down 9% from the trading level, makes up to $5.90 between 69 and 61 with the max gain below $61, down about 17%.
The two year chart below highlights the $69 put strike as important technical support, and the 2014 low down near $61:
On a longer term basis, the 5 year chart below shows the stock sitting on the uptrend that has been in place from the 2011 lows, a break here likely sees the etf with a six handle:
Options prices (implied volatility- blue line) in the XLY look fairly reasonable relative to realized vol (how much the etf is moving-white line) at 23% vs nearly 19%, and below the 33.8% and 30% 52 week highs respectively:
What’s important about the comparison of realized vol vs implied is that the top ten holdings make up about 50% of the weight, and many of the largest holdings, Amazon (AMZN) at nearly 11%, The Home Depot (HD) at 7%, McDonald’s (MCD) Starbucks (SBUX) and Nike (NKE) are all still up a ton from their 52 week lows. If these stocks were to start to drop like other top holdings like Comcast (CMCSA), Walt Disney (DIS) & Time Warner (TWX) did last year, then we could see a fairly precipitous decline for a sector that has shown very healthy relative strength.
