Carter Worth And Mike Khouw's XLP Trade

On CNBC's "Options Action," Carter Worth shared with viewers his technical analysis of Consumer Staples Select Sector SPDR Fund XLP.

He noticed on its chart a reversal pattern, called head and shoulders, and there are also additional signs of weakness. The stock has traded below its uptrend line and below its pre-pandemic top. Both of them were important support levels.

Worth concluded that we have a distribution in the name and there is more to go. He is a seller of the ETF.

Mike Khouw said that XLP has implied volatility of 20% and that is nearly double than the last year. To make a bearish bet, Khouw wants to buy the November $63/$59 put spread for a debit of $1.05.

The trade breaks even at $61.95 or 2.73% below the current stock price. If the stock drops to $59 or lower the trade will reach its maximal profit of $2.95.