It would seem that the "new" economy we live in -- one where we order everything online for fear of walking into stores -- would benefit the companies that provide the infrastructure and transportation to make that happen. Fundamentally, that makes sense. But we're chart readers here, and the charts are telling us something different.
The guys at ASC are out with a piece this week highlighting the weakness under the hood in some of the biggest sectors in the US Stock Market. Read it here.
One of the poster children for weakness we want to get short ahead of another possible leg down is setting up right now.
Since I've got a little positive delta building in my portfolio and I'm leaning towards the market feeling a bit overextended here, I'm adding a little negative delta in an index to help balance the risks in my portfolio a bit.
And of course, it makes the most sense to get short the weakest (in relative terms) index to express this hedge.
Say what you will about stock market action since the equities bottom was put in on March 23rd, but either way you can't not be impressed.
Do we go higher from here?
I don't know the answer (hint: neither do you), but I do know that if we do, we're going to be continually led by the leaders in this bounce so far. And one of those leaders is the stock who's company everyone uses -- in some way -- whether you realize it or not: Google.
Options premiums are still pretty elevated across the landscape and the default mode for me when looking for trades to put on is still to prefer selling premium to express any directional bets.
However, JC put some bullish metals ideas in my head last week that are starting to look interesting to me. And there's one in particular that warrants a shot with a debit spread -- where we can use the prevalence of still high options premiums to help us lower our cost of participation in a directional bet.
Now, $XLI is bumping up against some formidable upside resistance. And with options premiums still elevated, we're going to use them to leverage into a bearish directional bet here.
As long as it continues to pay, being delta-neutral short in this environment feels like the right move for me. We've already had some of our May positions hit our profit targets. But there is still meat on the bone for more short premium plays into May expiration.
