$XRT: Dead shopping malls rise like mountains beyond mountains

by Dan March 10, 2016 11:34 am • Commentary• Trade Ideas

You know the drill, just as I described in my prior post on XLB, I was early, and early equals wrong, but I remain convicted and want to roll out some recently placed bearish views. This time in XRT, from the same day as the XLB trade on Feb 19th (read here).  Aside from price (yeah yeah, price is truth) nothing much has changed in my mind about the bounce in retail stocks over the last few weeks.  And from a technical standpoint, the chart looks like a far better short entry at fairly obvious resistance,  just below its declining 200 day moving average (yellow line):

from Bloomberg
from Bloomberg

Similar to the prior XLB trade, I want to roll this bearish view up and out to June expiration:

*XRT ($44.65) Buy the June 45/38 put spread for $2
  • Buy 1 June 45 put for $2.40
  • Sell 1 June 38 put at 40 cents

Breakevens on June Expiration:

Losses: of up to $2 between $43 and $45 with total loss of $2 above $45

Profits: of up to $5 between $43 and $38 with max gain at or below $38

Rationale – This trade has good risk reward and looks far enough out for time to be right on this rally from the lows already being tired. We don’t have to worry about decay much to start so it’s merely deltas and a directional call.