We've seen consumer confidence crater over the past few months, as the trend in the economy continues to raise more questions than it answers.  The retail industry will be hard pressed to get a needed seasonal bump from the holidays, given that the average shopper has already pulled back. (See also: "Let Volatility Vault Your Options Profits.")

It is impossible to replace experience in trading the markets with anything else. Systems, tests, models and everything else available to traders just can't overcome the advantage of plain old experience. 

And it's been our experience that the retail sector tends to price its seasonal "holiday bounce" during September and October, only to see these stocks sag as the holiday season progresses.

And believe it or not, this has been the case over the past few months.  No, really. The retail HOLDRs (RTH) has actually outperformed the market on a relative-strength basis.

This indicates that these stocks have been appreciating against the market headed into their most critical period of the year. The problem is that downside risk is growing, with these prices reflecting optimism toward the upcoming holiday shopping season.

That being said, sentiment remains a little too mixed to jump into the sector with RTH puts, so don't get suckered into this short-side misconception — it's anything but a good deal. Instead, set your sights on put options in the XRT.

If you'd like to find out the best ways to play the downside of the retail sector and other profit-producing trades, join us at The Winning Edge today. We are living through some crazy markets. That's why this has been called "the best year ever for options investors." So your timing is perfect! Click here to start you risk-free trial today!