10d • Trade Alerts
A Sector Spread With Teeth: XLV-XLE Pair Trade
Hey, in the previous posts, I shared that rotation charts are finally giving us clean signals: XLV (Healthcare) keeps gaining relative strength, while XLE (Energy) is recovering after weeks of underperformance. Both sectors moved into a decision zone, and today I'm showing the exact structure I'm using to trade that divergence in the hedge fund.
Part 1: XLE Call Debit Spread (Defined-Risk Snapback Play)
- Buy 88C / Sell 91C Jan 16 (51 DTE), Debit: $1.59, Max Profit: $141
- A clean, defined-risk way to play the standard Energy bounce inside a choppy, low-volatility range. If XLE mean-reverts toward 90–92, this structure pays quickly
Part 2: XLV Call Ratio Spread (Harvesting Exhaustion)
- Buy 160C / Sell 2× 163C Jan 16 (51 DTE), Max Profit: $357, Max Risk is undefined (but extremely manageable in XLV).
- XLV is extended, overbought, and showing early fatigue. Elevated IV makes upper-strike calls expensive, perfect for a ratio spread that benefits from slowing momentum or shallow consolidation.
Why it works as a pairs trade?
These aren't two isolated ideas, they're one combined expression:
- XLE - defined-risk long delta where bounce probability is high
- XLV - premium capture where trend exhaustion is visible
- Combined - smooth Greeks, positive theta, and exposure to sector divergence rather than index direction.
This is how you express rotation and sector behavior without guessing the market's next move. A clean, elegant pairs structure built for this macro regime.
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A Sector Spread With Teeth: XLV-XLE Pair Trade
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I've been trading for twenty years, I'll share my experience.
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