Options Say Short Retailers
Inflow and outflow data is king information on the market. You know how much money is flowing out, how much is pouring in and where the “big money” is tossing big money. As much as I hate exchange-traded funds for how they operate (don’t even get me started on commodity funds) I realize that they are an excellent indicator for forecasting the future.
Reuters is really good at reporting absolutely nothing, so it should come to no surprise that they’re quick to report when a ton of people buy a ton of options. Thats news isn’t it?
Last month, option speculation showed that the homebuilders would rally, they did, and on improving real estate sales. Before that, Reuters reported that option traders were especially active in the financial industry and it proved to be red hot through March.
So I’ve got some kind of faith that the traders are right again with this one.
On the SPDR S&P Retail Trust XRT.P, a bearish options combination trade called a “butterfly” was apparently enacted on Friday on expectations the exchange-traded fund might shed as much as 18.7 percent based on a share price of $24.60.
The XRT, which holds shares in more than 50 retailers, was up 24 cents to $24.63 in late trade.
Volume in the May $20 strike was nearly 75,000 contracts, nearly double the initial trade of 40,000 as players braced for a possible share price decline, Reuters data show.
Friday morning 40,000 contracts traded in the May $20 strike after a strategist apparently entered a substantial butterfly spread: selling the May $20 puts while buying 20,000 May $22 puts and 20,000 May $18 puts, Ruffy said. Reuters Article
So somebody is betting big that the fund is going to drop from $24.60 to the range of $18.18-21.82 at which point the trade will be profitable. I’m willing to follow this one, not as a butterfly but as a straight trade with $24 strike options for $1.05 a pop. Thats a deal.
Looking at the underlying fundamentals of the retail system I can’t see much improvement. The more people employed, the more people spend and the more people there are to spend. I’d be short, $1.05 for a 25 day trade isn’t a bad premium.
Short retailers? I like it. We are way overbought at these prices levels and this V-spike up cannot last. Markets never go straight up or straight down. I am also looking for a Zag to this recent Zig. Need at least a TEST of the recent months lows if nothing else. Good stuff, Jordan.