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Melissa Lee's SPDR S&P 500 ETF Trust Trade

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On CNBC's Options Action, Melissa Lee and Carter Worth teamed up to offer a bearish trading idea in SPDR S&P 500 ETF Trust (NYSE: SPY).

Worth showed a chart with a performance of major indexes. He explained that the S&P 500 performed much better than iShares Russell 2000 Index (ETF) (NYSE: IWM), iShares MSCI EAFE Index Fund (ETF) (NYSE: EFA) and NASDAQ Global and said it would be reasonable to expect a pull back in the S&P 500.

Carter Worth thinks that there is a correlation between iShares iBoxx $ High Yid Corp Bond (ETF) (NYSE: HYG) and the S&P 500. He said that since beginning in 2009, the bull market draw downs in the HYG have occurred just at the same time S&P 500 had a draw down. He thinks that the trend in HYG is broken now and he expects SPDR S&P 500 ETF Trust to deteriorate around 10 percent to $178.

Melissa Lee recommended a purchase of a put spread in SPDR S&P 500 ETF Trust. Specifically, she wants to buy the November 193 put for $2.40 and sell the November 178 put for $0.65. This put spread would cost her $1.75, which is her maximal loss. She can maximally gain $13.25 with this trade and her profits are capped at $178.

Posted-In: Carter Worth CNBC Melissa Lee Options ActionMedia


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