On Friday we detailed a defined risk short trade idea in the XLK, the S&P Technology Select etf, read here. And I talked about it but with a December expiration on Friday’s Options Action on CNBC:
I hope I made it clear that I did not think it was a great entry on the short side, with the Nasdaq Composite down 2.5% that day. I wanted to wait for a bounce early this week. We got that yesterday, and today’s decline is half of yesterday’s gain. The pick up in volatility leads me to believe that the path of least resistance may no longer be higher, and a pullback, as detailed in Friday’s post to at-least the July breakout to new highs could be in order, with a possible test of the long term uptrend before the year is out. AAPL’s gains has helped buoy the XLK today (AAPL is 13% of the weight) but in my opinion that has helped provide an opportunity for a short entry as I suspect the stock will settle back in back towards $100 prior to next month’s fiscal Q4 report.
I’m going to use this opportunity to target January expiration (extending it a month from Friday’s OA appearance) and give myself a lot of time for this to play out:
*Trade: XLK ($46.70) Buy Jan 46 / 40 put spread for $1.25
- Buy 1 Jan 46 put for 1.65
- Sell 1 Jan 40 put at 40 cents
Break-even on Jan expiration:
Gains: between 44.75 and 40 make up to 4.75, max gain of 4.75 at 40 or lower
Losses: up to 1.25 between 46 and 44.75 with max loss of 1.25, or 2.7% of etf price