Carter Worth And Mike Khouw's XLI Trade

On CNBC's "Options Action", Carter Worth shared with the viewers his technical analysis of Industrial Select Sector SPDR Fund XLI.

The stock has underperformed the S&P 500 year to date and Worth noticed several bearish signs on its chart. Industrial Select Sector SPDR Fund is in a downtrend and it's possible to draw a very precise line to which the stock rallied several times in the past, explained Worth. He also noticed a head and shoulders top, a bounce back to the 200-day moving average and a critical juncture between the 200-day moving average and the downtrend line. He's concerned about the stock's poor relative performance to the S&P 500 and he thinks that it's going to trade lower.

Mike Khouw suggested an options strategy in the name. He wants to sell the June 76 call and buy the June 77 call for a total credit of 30 cents. If the stock stays below $76 at the June expiration, he's going to collect the premium. Above $76.30, he starts to lose money and he can maximally lose 70 cents.