Carter Worth And Mike Khouw's Financial Select Sector SPDR ETF Trade
On CNBC's Options Action, Carter Worth and Mike Khouw teamed up to create a trading idea that should work well in a rising interest rate environment.
Worth presented a couple of charts of Select Sector Financial Slct Str SPDR Fd (NYSE: XLF), and showed a technical pattern, called a "wedge."
Worth then explained that after this pattern appears on a chart, its price usually moves sharply. It can, he added, move in both directions. Worth added that the ETF can be expected to move higher in correlation with an eventual rise in interest rates.
Khouw, meanwhile, discussed options. The financial instruments are cheap now, he said. Khouw recommended a purchase of call options as a simple way to make a bullish bet.
He would buy the XLF's July 25 calls for $0.25 -- approximately 1 percent of the current market price. The trade's break even is at $25.25.
Since the current wedge pattern indicates a possible sharp move in both directions, Khouw thinks it's better to define risk with options.
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