SPDR S&P Biotech (ETF) (XBI): Embrace the Biotech Bulls’ Return

Advertisement

Yesterday’s bout of profit taking was desperately needed for active traders. Why? Because it ushered many stocks into lower risk buy points … especially recent runners like the exchange-traded fund SPDR S&P Biotech (ETF) (NYSEARCA:XBI).

SPDR S&P Biotech (ETF) (XBI): Embrace the Biotech Bulls' ReturnBiotech stocks are back and the time to pounce is nigh.

The biotech sector, once the belle of the ball, suffered an ugly reversal of fortune last year. By the time XBI lovers finally mustered adequate back-up to halt the selling sortie, the king of biotech stocks had fallen 52%.

But, I’m happy to report that after six months of resting and recuperating, XBI has returned to full strength — support has been established, resistance has been smashed. And with that, order has been restored to the land of biotech.

XBI

Source: OptionsAnalytix

If you missed last month’s breakout — high-volume moonshot that it was — worry not. As mentioned, profit taking has ushered biotech stocks back to an attractive entry point. The rising 20-day moving average looms large for XBI. And if that fails, the $60 zone is bound to provide some support.

One of the beautiful things about using a sector ETF like XBI to play the biotech space is its inherent insulation from adverse company specific news that crops up to kill the occasional biotech stock.

The XBI Trade

With the volatility monster still deep in slumber, option prices across the land remain cheap. So if you’re going for the gusto, consider buying XBI call options. Buy the Dec $62 calls for around $4.25. The liquidity for options in the biotech ETF isn’t the best, so limit orders are a must here.

The Dec $62 call recently boasted a 50-cent bid-ask spread which is definitely on the wide-side for a $4 option. And yet, the open interest is over 5,000 so there’s enough activity to justify participating.

The risk is limited to the initial $4.25 and will be lost if XBI sits below $62 at expiration. The reward is unlimited. You might consider using prior resistance at $65 as your first target.

At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.

More From InvestorPlace

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2016/08/biotech-stock-bulls-return-xbi/.

©2024 InvestorPlace Media, LLC