On February 20th Dan checked in on the bricks and mortar retail sector, especially focused on the reversal from the highs in Walmart (WMT) stock and what that could mean for a bunch of other retail stocks set to report. He used that as an opportunity to detail a bearish trade into March expiration in the retail etf XRT. Here was the trade idea, from Feb 20th:
XRT ($45.70) Buy March 45.50 – 43 put spread for 60 cents
-Buy to open 1 March 45.50 put for 83 cents
-Sell to open 1 March 43 put at 23 cents
At the time, XRT was 45.70, and it has sold off following the reports and is now sitting at 44. Now the put spread is worth about 1.40, more than a double from its initial cost of .60
As far as trade management it essentially just a market call from here. The intrinsic value of the trade is 1.50, so not a ton of premium to come in over the next week, so the main thing in play here is delta.
For those happy with the profits it makes sense to simply close the trade an move on. For those looking to squeeze out some more if these stocks continue to the downside it would make sense to simply keep a mental stop above in the the ETF and close the trade if the market starts to bounce.If the market keeps going lower this could be worth up to 2.50.
As far as any roll opportunities for those looking to take some profits while extending the view beyond next Friday, closing the 45.50 puts and turning the trade into a March/April 43 put spread could work. That roll would take about 80c off the table (booking .20 in profit) and then would set up well if the stock continued lower but not below 43 by next Friday. The April 43 puts could then be turned into a put spread once the March 43 puts expire.