So with the FED hiking rates another .25 bps in June (96% odds as of right now) I am making a bearish trade in the home builder ETF. I have never traded through a rising rate environment so.......take it with a grain of salt. I am buying the 40 put in October and selling the 36 put in October for $1.12 This is a defined risk trade for a debit (not really the Tasty Trade way) With an Implied Volatility Rank of 14% I am going to allow this for my smaller account since the risk/reward ratio is more inline with growing a small account (risk 1.12 to make 3.80) I would have defaulted to a 3 wide spread but the 36 strike had considerable more open interest for 20 cents more. This trade may work because the overall market tanks or the market could continue rallying and make it price in even more hikes.....I am not really sure what will happen but I have come to really hate those long sideways horizontal channels that can tend to plunge. I have 130 days for this trade to play out and no way of adjusting without adding risk other than rolling out for time (which usually only works if it goes against you) I can not see home sales continuing at this pace if interest rates continue going up and something has to give.
Comment:
Trade closed manually- Closed this trade just now for .25 because I would like to duplicate the same premise in TLT with lower IVR and a bit of a rally. Only .03 shy of 25% in a few days. Thought I would have done better with an extra hike priced in.......apparently nobody believes this?