On June 9th we took a look utilities etf (and bond proxy) XLU. At the time XLU was trading 53.55 following a bit of a breakdown. We felt the breakout was likely to fail and we detailed a trade looking for a slight move lower in the near term. Here was the original trade, from June 9th:
Bearish
XLU (53.55) Buy the July/Sept 52 put calendar for .60
- Sell 1 July 52 put at .35
- Buy 1 Sept 52 put for .95
Recently, bonds have been on a bit of a wild ride as central bankers across the globe lay out their plans for the next year. Now with XLU 51.90 and very near our strike the original trade is worth .80. The short July 52 puts are worth about .40 vs the original sale at .35 so the decay there has helped. For trade management purposes this bounce today is helpful and the longer the XLU stays near 52 over the next week the better. We’ll try to squeeze as much out of that decay into July expiration as possible and as long as the stock is near 52 there’s no rush to roll. But at some point in the next week we’ll look to close the July puts and roll to August or beyond, ideally at a lower strike, creating a vertical.