Overview: Industrial Select Sector SPDR (NYSE: XLI)

This exchange-traded fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the major publicly traded U.S. industrial companies. The top 10 holdings in the sector are Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Deere (NYSE: DE), Emerson Electric (NYSE: EMR), GE (NYSE: GE), Honeywell (NYSE: HON), 3M (NYSE: MMM), Union Pacific (NYSE: UNP), UPS (NYSE: UPS), and United Technologies (NYSE: UTX).

These stocks have performed well year-to-date. Industrials are up over 7%, while the XLI market price is up nearly 11%.

For options trading investors we would recommend owning XLI shares at the current trading range of $38.20- $38.50.

Option Trade – Covered Call on XLI

If the investor were to purchase shares at a trading level of $38.50 we would recommend selling a covered call option. By selling the XLI Sept 40 Call for $0.95, this would give the investor a breakeven in the ETF of $37.55 ($38.50-$0.95) thus reducing the purchase price. The benefit of the covered call is that the breakeven price is lowered and the investor owns a solid ETF like XLI.

If XLI doesn’t close above the 40 strike at September expiration, the investor will keep the premium and maintain the long fund position. The strategy allows for the investor to receive cash flow from the sale of the call option of .95 while reducing some of the purchase price of XLI.

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.