Update – XLP: Did You Try Staples?

by CC August 29, 2017 2:07 pm • Trade Updates

We’ve discussed Consumer Staples stocks a bit in the past few weeks. We look at that group as fairly expensive in an expensive market. Amazon’s recent moves in bricks and mortar is likely to also put the squeeze on pricing, and components COST and WMT will likely remain under pressure. On August 7th we detailed a trade ideas, selling a put in Sept and Buying one in December. Here was that trade:

Buy the XLP (55.36) Sept/Dec 54 put calendar for .75
  • Sell 1 Sept 54 put at .28
  • Buy 1 Dec 54 put for 1.03

The stock hasn’t done much. It’s down slightly. That means the calendar has been the correct trade so far as the December puts have gained a little with the stock lower (good), and the short Sept puts have actually decayed a little (good). But with all trading it makes sense to look from what is working now to how that could change soon. The idea for calendars into the slow trading of Labor Day is protective. The long puts later in the year are the aggressive portion. And with the Labor Day holiday quickly approaching, the low volume low vol trading environment could give way to more familiar Fall volatility. Therefore I think it makes sense to squeeze as much as possible out of the Sept 54 short puts this week. But maybe by Friday look to roll out to December 49’s. Right now that roll is about even. In a couple of days it could be even better. That takes the risk of XLP going through strike following the holiday if sellers show, and positions for some weakness into year end without worrying about being long deltas below a strike.