Update – $XLU Taking Profits in Feb Call Spread

by CC January 29, 2016 12:20 pm • Trade Updates

We’ve been pretty thematic in our trading the past few months on RiskReversal. Hedge your portfolio (e.g. IWM, SPY, QQQ), avoid anything with strong dollar and international exposure and hide out in treasuries (e.g. TLT), look to short cult stories that may be long in the tooth (e.g. Tesla), and on the long side, try to be defensive by buying domestic centered stocks with good yield (e.g. Verizon).

On the theme of domestic/yield we’ve been long the utilities etf, XLU, with defined risk option longs. We traded around the position several times and worked our way into a cheap February call spread. Here’s our current position, last updated on December 17th:

Long the XLU ($43.70) Feb 42/45 call spread for .65

XLU has held its own during the ugly market correction to start the year, and with the market recently stabilizing a bit, it’s even broken out of its consolidation to the upside:

Screen Shot 2016-01-29 at 9.24.36 AM
1 yr XLU from LiveVol Pro

Now with XLU 45.40 this trade is above our short call and worth nearly triple our cost (worth 2.45 vs .65 paid) With only a few weeks until expiration and only .50 more in profits possible we’re not going to be greedy:

Trade Update – Sold to close the XLY (45.20) Feb 42/45 call spread at 2.45 (for a 1.80 profit)

We still like this theme and we’ll look to revisit XLU on a pullback and continue to look for similar plays from the long side.