Speaking on Bloomberg Markets, Dan Deming of KKM Financial suggested a risk reversal trade in Utilities SPDR (ETF) XLU.
Deming believes there could be a further pull back in the ETF and he wants to protect his long position with a risk reversal trade. He wants sell the October 51 call and buy the October 48 put for a total cost of $0.20. The trade offers protection below $47.80 or 5.22 percent lower from the current stock price. If the stock trades above $51, the profit on the long stock position would be capped at 1.13 percent.
Technically the stock broke below its 50-day moving average and there is a resistance at $51.33, explained Deming. He added that Utilities SPDR (ETF) could drop to its 200-day moving average, at $47, and if the sentiment about interest rate increase changes, it could drop even lower.
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