Carter Worth And Mike Khouw's XLY Trade

On CNBC's "Options Action," Carter Worth spoke about the recent rally in Consumer Discretionary SPDR XLY and suggested that traders should short it after such a move higher. He compared XLY with an equally weighted consumer discretionary sector and concluded that the spread between the two has never been so wide. He sees that as a good enough reason to take a short position in XLY.

Mike Khouw suggested an options strategy to make a bearish bet. He wants to buy the June $105/$90 put spread for $2.95. The trade breaks even at $102.05 or 9.63% below the closing price on Friday. It can maximally make a profit of $12.05 if the stock drops to $90 or lower at the June expiration.

Tony Zhang said that the catalyst that Khouw and Worth are looking for may not come for some time, because Amazon.com, Inc. AMZN is reporting earnings at the end of April and Home Depot Inc HD toward the end of May, and they are almost a third of the XLY. He likes the trade, but he would also sell a call spread with an expiration in May to collect some premium.