In early April we targeted the home-builder etf XHB with a June put spread. At the time we took a dim view of home sales for a handful of reasons, and we thought the technical set up with the stock approaching a prior breakdown level as good of time to express a bearish view in the sector. Here was the original trade:
Trade: XHB ($33.70) Buy June 34/ 30 put spread for $1
- Buy to open 1 June 34 put for 1.25
- Sell 1 to open 1 June 30 put at .25
The etf went a bit higher once we put on the trade but has since retreated and is now in the money and lower than our entry. It has decayed a little bit so it’s only a slight winner here, worth about 1.15 versus the 1.00 originally spent.[caption id="attachment_63851" align="aligncenter" width="688"] XHB from LiveVol Pro[/caption]
Tomorrow morning we get results from XHB holding Toll Brothers (TOL) as well as April new home sales data so we could see a follow through to the downside or a bounce from recent weakness depending on how the homebuilder stocks react to that one-two punch.
Our break-even on the trade is $33, very near to where the etf is currently trading. Any move back towards $34 and the entire premium spent is at risk so if a bounce were to occur and hold we may have to play defense and maybe close the trade for even or a small loss. On the downside we can be patient below $33, with $32 below an obvious spot to possibly take profits. June expiration is still nearly a month away so we have time but we don;t want to get caught holding the bag with out of the money premium so we’ll be defensive above our $33 break-even and patient below.