Sears Holdings Corp (NASDAQ:SHLD) could be the retail sector poster child of the Amazon.com, Inc. (NASDAQ:AMZN) victims. Media experts sometimes refer to the Amazon effect as recent, and those experts are wrong. The Amazon story has been going on for a decade. The SPDR S&P Retail (ETF) (NYSEARCA:XRT) stock action is proof enough that the retail sector as a whole chose to ignore the danger until it was evident on their P&Ls, though SHLD stock is the most glowing example.
![Short Sears Holdings Corp (SHLD) Stock and Its Laughable Rally](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
Although Sears management wasn’t alone in making this mistake, SHLD shares have suffered far more severely than the ETF.
Today, though, Sears stock is enjoying a nice spike on some short covering as Sears robs Peter to pay Paul. I think I’ll bet against it.
Fundamentally, Sears is on life support. Yes, SHLD stock enjoys a spike from time to time, but that’s usually associated with jolts from asset sales — the likely driver of this recent rally. All of them turned out to be short opportunities.
Thus, spikes aren’t breaths of fresh air — they’re dying gasps.
Technically, this latest bump in Sears shares is a measured move that could have some more upside. Still, I want to short it — cautiously. Instead of selling the stock outright and be open to unlimited risk, I’m going to use SHLD options.
How to Trade SHLD Stock Here
The bet: Buy the Apr $9 put for $1.10. This is my maximum potential loss. I need Sears to fall through my strike price before mid-April for the trade to be a success.
I would normally finance my debit bets by selling risk against value. But in the case of SHLD stock, I don’t have faith in its value. So instead, I will sell limited risk, not naked puts.
The bank: Sell the Jun $4/$5 credit put spread for 20 cents per contract. With the current 40% buffer, this trade has an 80% theoretical chance of success. For this one to win, I need Sears to stay above $5 — thus, the stock would need to set new lows.
If I take both trades, that means I’m shorting SHLD stock for free. As long as it stays above my sold put spread, any premium I recapture from selling the debit puts would be pure profit.
I am not required to hold my trades open through expiration. I can close them at any time for partial gains or losses.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.