XLP 55 strike PUT, Betting on bearish XLP sector.
For this trade, I am entering a short position on XLP by buying the 55$ strike for about 5 dollars per contract. Looking at the S&P500 , I believe the overall market is about to struggle with higher interest rates and possibility of higher . With this idea of higher interest rates, I've been watching which sectors have begin to perform the worst such as utilities, REITS, and especially consumer staples . Recently, Phillip morris had a huge sell off which equal to approximately 8% of the index. In addition to tobacco stocks struggling, the overall sector as whole has underperformed and has broken a "lower low" which signals a correction in the index. Currently we are tested the last before the index could really fall off the chart. My risk is of course the amount "I pay" for the option which 5$-5.10$ and am expecting atleast 1% move of the stock in order to break even. However, I could see another 10% correction and a possibility of a beginning. With this in mind, the risk to reward ratio is about 1:1 and I hope to be making atleast 50% return and ultimately 100% in the longterm. If you are long the stock market, this is a cheap way to hedge the market buy selling one of the weaker sectors as bond yields increase.
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