Sector Rotation Strangle - Long Bio, Short Specialty Retail

This is a complex play that involves a lot of risk and the use of options on both ETFs and Stocks.

Goal: Capture the apparent sector rotation activity between Biotechnology and Specialty Retail.

I have been waiting quite some time for these two sectors to start playing out the way they ought to, based on earnings across the board and common sense.

I see LULU's miss as the final act before the fringe players in the retail space get hammered down.

I have also been waiting for biotech to turn, as it has been stagnant for quite some time. I think getting into VRTX is wise, as it is one of the top players in the space and just got a nice price upgrade.

Meanwhile, while longing VRTX and XBI (bio ETF), I plan on buying a put position in URBN (worst specialty retailer) and XRT (specialty retail ETF.

Again, very risky play given the current market environment, but the tape tells me this will work.

Let's see.

XBI XRT VRTX URBN

Trade active:

This is gonna work nicely on the bio-long side tomorrow and into next week. Still see retail apparel as the ultimate offset. Wouldn't touch it if you have this setup already in place, especially with VRTX as your lead bio-horse.

Trade active:

Bio about to melt up and so this trade is still very much on. Eventually, apparel/specialty retail will capitulate, so while keeping the short position seems pukeworthy, it still works perfectly fine as a general, systemic hedge against a market selloff.

I can say this confidently because the stocks in this sector do actually fall hardest on the few broader red days we've seen over the past two weeks.

Scaling farther into Bio via slight diversification could be a wise play too. Instead of the Bio etc, you could pick two others like ALXN, REGN or BMRN. I wont mention my favorite one starting with N and ending with X because I'm starting to feel like a club promoter.

GL - this play is shaping up quite nicely.

Comment:

Bio ETF*** not etc.