Carter Worth And Mike Khouw's XLP Trade

Carter Worth shared with the viewers of CNBC's "Options Action" his bearish technical analysis of Consumer Staples Select Sect. SPDR XLP. He said the stock has been in a perfect uptrend, but when it reached its latest new high it did not make a relative high. He sees this as a bearish sign and he expects the stock to break the trend.

Worth also noticed that the stock is bouncing off the uptrend line, but it's compressing and it's not getting the bounce it had in the beginning of the trend. Worth has also shown that the stock pulled back after each big move higher and he expects to see the same after the recent move higher.

Mike Khouw said that the largest constituent of the ETF, Procter & Gamble Co PG is trading at 30 times earnings and it has no revenue growth. He thinks there are better places to invest in.

To make a bearish bet on XLP, Khouw wants to buy the January $61/$56 put spread for $1.25. The trade breaks even at $59.75 or 1.79% below the closing price on Friday. If the stock drops to $56 at the January expiration, the trade is going to reach its maximal profit of $3.75.