At least one trader is not expecting holiday cheer for retail stocks.  Less then 30 minutes into Monday’s session, 25k of the XRT Dec 12/31 44-40 put spreads traded on the PHLX. 

The trader bought 25k XRT Dec Quarterly 44 Puts for $1.25 and sold 25k XRT 12/31 Quarterly 40 Puts $0.22, establishing a Bear Put Spread for a net debit of $1.03.

The total premium outlay for this trade was $2.575M with contracts that have the potential to control 2.5M share of the underlying (if in-the-money at expiration). 

Perhaps the Fed will make holiday shoppers think twice before throwing down their plastic, just as last-minute holiday shopping is supposed to pick up? 

The SPDR S&P Retail ETF (XRT, 44.54) has traded in a 52-week range of 41.62-51.25 and is down over 7 percent YTD. 

XRT hit it’s 52-week high on March 31 and was range bound until mid-July, when it tested that same level before selling off hard to the 52-week low.  Shares rebounded past 47.5 in mid-September, only to re-test the 47 level earlier this month before selling off to current levels. 

This trade looks to me so it is likely tied to stock, so I am not interested in trading along with paper. 

The XRT Jan 45.5 Straddle is priced at 2.05, implying a move of 4.5 percent between now and January expiration. 

My Trade: 

Buy the XRT Jan 45.5-46.5 Call Spread for 0.25

Risk: $250 per 1 Lot

Reward: up to $750 per 1 Lot

Break-even (share price at expiration): $45.75

Oftentimes I like to look to the back-month in near-dated unusual options activity trades to give myself a little more time should the trade not work. 

I also believe in the American consumer, and this trade looks to me like it could be a hedge against a long stock position.