Benzinga | Sep 20, 2020 06:10PM EDT

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 (NYSE: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.