Tuesday’s CPI report shows slightly higher-than-expected inflation, suggesting that the Federal Reserve is likely to delay potential rate cuts. This could pressure interest rate-sensitive sectors like real estate and set up a potential profitable options trade. Digital Realty Trust (DLR) stands out as one such stock particularly sensitive to interest rate fluctuations. It’s already feeling the heat, having faced rejection around the $153 mark. DLR YTD mountain Digital Realty Trust, YTD Since timing the market perfectly is an elusive game, I’m scouting for a bearish opportunity on DLR based on my projection of its continued downward movement from here. To gauge this, I’ve turned to Fibonacci retracements, a trusty tool in my arsenal. These retracements provide valuable insights, projecting current price dynamics into the future, helping me anticipate potential market movements with more clarity. Based on Fibonacci analysis, DLR could decline further towards the $140 level. This price target aligns with a key technical confluence – the 61.8% retracement level and a historically significant support zone – offering a potential entry point for a bearish trade setup.. Armed with this knowledge, I am looking to benefit from the pullback in DLR as long as it stays below the 146 area. The trade The trade structure I am using here is called a “bear put spread”. You may find trading platforms using other names like “put debit spread” or “long put spread” too. NOTE: With DLR trading around $146, I am looking to buy an ATM (at-the-money) put spread. For an ATM put spread, I like to wrap the price between my strikes. So, irrespective of where DLR trades today, my long strike would be above the current price and the short strike would be below the current price. Here is my exact trade setup: Buying $147 put, March. 28th expiry Selling $146 put, March. 28th expiry Cost: $50 If DLR trades at or below my short strike by the expiration date, this trade can yield a 100% ROI on the amount risked. With 10 contracts, this equates to risking $500 to potentially gain $500. Based on Fibonacci retracement tool, my projection is that DLR will continue dropping to the 140 area before it sees a bounce which should be enough for my trade to be profitable. -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
