- Retail share prices are plummeting and this is one of the few ETFs that offer an option to profit from this trend.
Many of our readers believe that retail is dead. That’s true for many retailers, and the reason why we’ve recommended opening short positions in Build A Bear Workshops (BBW) and Bed Bath & Beyond (BBBY).
Those are just two examples of failing retailers. There are literally dozens more that are likely to fail.
Take GameStop as an example. We opened a short position on August 21, 2018. Here was our exact recommendation.
While we expect GameStop to continue paying its dividend for the next few quarters, the outlook is downright ugly. We recommend buying long-term puts (2020) to take advantage of the inevitable crash.If you own shares…prepare yourself for a turbulent ride.
On June 3rd, the struggling retailer reported abysmal earnings and halted their dividend program. Shares were pummeled! The stock has lost nearly two-thirds of its value since January, and they’re likely headed into penny stock territory. If you took our recommendation by buying puts, you’d be up several hundred percent on put options with a $10 strike price and January 2020 expiration.
Abercrombie and Fitch shares closed above $30 on May 3rd. Today, one month later, shares were trading just above $16.
I could continue to outline dozens of examples, but you get the point. Brick and mortar retailers are unlikely to survive the onslaught of eCommerce competitors like Amazon, Wayfair, and the countless options that offer 2-day free shipping.
So how do we take advantage of these crumbling retailers? We’ve recommended buying puts or shorting retail stocks, but many of our readers have yet to enter the world of options and short selling. That’s ok, it’s not for everyone. There can certainly be more risk associated with options and short selling.
There are still options to take advantage of declining share prices for retail stocks. Our primary option is buying ProShares Decline of the Retail Store ETF (EMTY). This ETF aims to generate a -1X return of The Solactive-ProShares Bricks and Mortar Retail Store Index. This means if the Index falls by 20%, EMTY should, in theory, increase by 20%. The Brick and Mortar Index contains stocks like Gap, Signet Jewelers, and L Brands, all of which are down over 30% on the year.
While shares of EMTY have spiked in recent weeks, we’re confident more gains are ahead. Retailers will continue to report abysmal earnings, and the entire basket of retail stocks will fall together. If you’d like to bet against brick and mortar retailers, consider opening a position in EMTY at a price between $37 and $40.