The set-up: If it’s beginning to look a lot like Christmas, it’s looking like time to buy consumer-discretionary stocks. The Consumer Discretionary Select Sector SPDR ETF (XLY) has a history of outperforming the S&P 500 through the end of the year because people like to go shopping; about the only shopping I like to do during the holiday season involves buying things that outperform the S&P 500.
The history: Between Thanksgiving week and the first week of January, the consumer-discretionary sector has gained an average of 3.5 percent, closing higher in 12 of the last 17 years.
Moreover, since 1967, the Standard & Poor’s 500 has averaged a gain of 2.8 percent in the 30 trading days – give or take based on the specific calendar — between Thanksgiving and Christmas.
The play: On Tuesday, I bought to open eight XLY call options at $2.20 for a longer-term trade through the holidays.
Intraday, I sold to close half of those contracts at $2.42 for a 10 percent profit. It is common for me to take partial profits, while looking to re-buy if the opportunity presents itself.
While I’m always happy to get paid along the way, what’s next is always equally important; I’ll buy the more of the same XLY options next week on a bullish chart pattern, such as an inverse head-and-shoulders chart, which likely will still cost somewhere in the low $2 range.
Davis Martin is the head trader at Dailyprofitmachine.com. He trades SPY calls and puts and swing trades individual stocks and stock options. At the time this piece was published on RagingBull.com, he held 4 XLY 3/16/18 calls (purchased at $2.20), having day-traded an equally-sized position for a 10 percent profit on Tuesday. He is looking to trade more XLY contracts through the holiday-shopping season, as described in the article; prior to Tuesday, he had never before traded the XLY.
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