Intermediate Trade: SPDR Consumer Discretionary ETF

Last week I mentioned that I wanted to see how the market played out before committing to new retail positions for holiday 2015. There were multiple macroeconomic and geopolitical events, and it was prudent to see how things played out before putting fresh positions on. That piece was written Tuesday, Dec. 1, and I said: I think we remain range-bound or higher here, barring any major geopolitical event. I am willing to take a controlled loss on my volatility position, because it represents risk control relative to the amount of longs I have on. I'm glad I waited to initiate new ideas because I don't think anyone expected the major swings we have seen since my last post. Sure, there were great trading opportunities to scalp on the intraday moves, but trades and positions are two very different things. I adjusted existing positions and sold into strength where appropriate, but I did not put on any fresh position ideas until this past Wednesday. The only short-term trade I took was into the EIA inventory data via the United States Oil ETF (USO) as an event-specific idea and closed it following the release for a quick 10% gain. The S&P 500 has been so married to crude levels and there was no reason to be a hero and squeeze more from it. Since then I sold Tyson Foods (TSN) into strength. Admittedly, I lost some more upside, but my mantra is singles and doubles. I will absolutely be back in that one and looking at J.M Smucker (SJM), another name I have written about several times. I like what's happening for the space, as you can see in my SJM/Consumer Staples space I wrote for Action Alerts OPTIONS. I also closed out TJX Cos. (TJX) call spreads and will look to get back in on strength or weakness. That stock is one of my more highly convicted ideas and it showed relative strength in a choppy market over the past week. Discounters and athleisure is where I want to be for holiday 2015/January in the consumer discretionary space. Now for my losers. I will always talk about my stinkers, because winners mean nothing unless you are 100% transparent and learn from the ugly positions. This is why we preach 100% risk control and proper hedging for positions to make the ugly ones bearable. I love VF Corp. (VFC), the distributor of The North Face, and Timberland, and Skechers (SKX), which is also part of the hot athleisure/outdoor trend. But these poor stocks can't get out of their way as the Northeast enjoys an abnormally warm December. I know, I know -- retailers blame weather all the time. And I know you are all thinking, Jill, if you did not have VFC or SKX on long, it would be sub-freezing in NYC. Luckily, options afford us the ability of risk control and the ability to roll for more time in the names we are fundamentally convicted in. I now have a VFC Jan. 65/70 call spread and SKX Jan. 35 calls. Those are my stinkers, but manageable, and part of my fundamental wheelhouse. On Wednesday's weakness I added the SPDR Consumer Discretionary ETF (XLY). I follow this exchange-traded fund closely, as I want to participate in the individual holdings, but they are a bit too rich from a capital perspective and Tums doesn't make a bottle big enough for me to swallow the swings. I want to actively capture moves in stocks within the sweet spot of retail like Amazon (AMZN), as well as Disney (DIS), Home Depot (HD), Lowe's (LOW) and Nike (NKE). Exchange-traded funds like the XLY allow retail investors to participate in the moves with the stocks mentioned above while keeping costs and emotions under control. I put the XLY Jan. 79/84 call spread on Wednesday for $1.74 and I am up slightly on the position. Here is a snapshot of my P&L as of the close: It is a small position, obviously, as I want us to trade along together and keep it manageable, and I'll adjust it along the way. The spreads are easily workable and not a tricky position to initiate or manage relative to a singular stock/equity option position. You are looking at about a $0.05-$0.06 per spread to work. Average (or leg in), but don't go crazy nickel and diming this because none of us are in for size and this is more of a fundamental trade. Typically, I am out on the downside at 20%-25% and happily taking a gain on the upside for 35%-40%, but we will give this position more room to work. The one-year chart shows XLY above the 50-day and 200-day moving average, which are indicators I look at for basic price confirmation -- nothing more sexy or granular than that for a long-term position. If you are looking for intricate technical analysis magic like dojis and wave completions, seek the Real Money Pro chartists: Collins, Ponsi, Meisler, Byrne, Lang, et al. Fundamentals and constructive price action help me with position establishment and management. I will trade XLY in my prop account around short-term patterns, but for the sake of Real Money Pro and proper subscriber communication, we will focus on long-term fundamentals and options indicators. I will look to add to this XLY call spread on pullbacks and exit when appropriate, which I will indicate in the comments section of the article and in the monthly chat forum. Please feel free to ask questions and provide feedback. TRADE: Buy to open XLY Jan. 79/84 call spreads for $1.94. Buy the Jan. 79 contract and sell the 84 contract against it for a debit. I would look to initiate this position regardless of the market being up or down on the open. As always, all my guidelines and suggestions are just that. Please stick to your own risk/reward parameters and what works best for your trading plan. Jill Malandrino can be followed on Twitter at twitter.com/OptionsProfits.

Intermediate Trade: SPDR Consumer Discretionary ETF

The ETF gives investors access to consumer stocks while keeping costs and emotions under control.

Columnist Conversation

This Weekend on Real Money

Friday Morning Fibocall for 1/22/2021

Worst Stocks to Buy for the Biden Presidency

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.