Condor Options

Barry gives a great overview of why the holiday shopping season is so important:

Why does this matter so much? Because Retail is serious business: According to the National Retail Federation (NRF), the last 2 months of the year account for 20% of total annual sales. For department stores, its closer to 24% and for jewelers, 31%. And according to the International Council of Shopping Centers (ICSC), nearly a third of retailers profits come in Q4.

A lousy holiday season has deep ramifications: it says a lot about consumer’s budgets; indirectly reflects the state of wages and income. Mostly, it reveals the state of consumer sentiment in real terms, rather than merely expressed in a telephone survey. Last but perhaps most important, consumer spending accounts for ~2/3rds of GDP.

So if retail is the canary in the coal mine, how should you play it? One idea would be to short one of the retail ETFs (RTH or XRT) on a ratio basis against your long indexes, on the theory that bad retail leads to bad markets in general.

But really, if the vaunted American consumer finally gives out, will the resulting recession be of the tradeable sort? Holding some retail shorts won’t do much good if there are barricades to storm. Because if the revolution comes, you’ll want to be short the financials, lol.