Solid ETFs for a Weak Market
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Options trading investors too have been using these ETFs. During the first quarter ETF option trading volume rose 37% and accounted for about one-third of all trading in options.
The market has been in doldrums recently making it difficult to find any equity to get behind. So we asked several of our options experts to offer trades on sector ETFs and their offshoots the Exchange Traded Notes (ETNs). Some sectors have been easily outpacing the market, such as commercial real estate as covered by the IShares Dow Jones U.S. Real Estate Index (NYSE: IYR) and the Health Care Select Sector SPDR (NYSE: XLV). Please click through and find our experts’ four trades and why they make sense now.
United States Oil Fund (NYSE: USO)
By Tyler Craig, Tylers Trading
IPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX)
By Tyler Craig, Tylers Trading
Health Care Select Sector SPDR (NYSE: XLV)
By Chris Johnson and Jon Lewis, Editors, The Winning Edge
XLV is up nearly 13% so far this year compared to just 3% for the S&P 500 Index Option (CBOE: SPX). Other than a pullback in early March and a slide over the past three weeks or so, XLV has plowed steadily ahead and is now poised to challenge its all-time high reached in late 2007. What’s more, the ETF is bouncing off the solid support of its 50-day moving average, which has contained most pullbacks for the past 10 months.
Speaking of the 50-day, XLV has a high percentage of its components trading above their respective 50-day moving averages. That tells us that XLV has strong underlying technicals that should carry the ETF at least through the summer.
With the economy hitting a “soft patch,” the next couple of months do not look overly encouraging for the broader indices. We like the defensive names — especially health care — to get us through the summer doldrums. Buy the XLV September 35 Call for $1.50 or less.
IShares Dow Jones U.S. Real Estate Index (NYSE: IYR)
By Chris Johnson and Jon Lewis, Editors, The Winning Edge
Though IYR has struggled for the past couple of months, it has more than doubled the return of the S&P 500 Index Options (CBOE: SPX) so far this year. After peaking last month at a multi-year high, the ETF pulled back to what appears to be a solid basis of support around the 60 level. The 60 mark defined tops in February and April and marked a bottom last month. It is also the site of heavy put open interest, which often acts as support.
Despite IYR’s out performance in 2011, skepticism abounds. The ETF’s short-interest and put/call ratios are coming off multi-year highs, a sign that extreme pessimism is beginning to unwind. But these ratios remain at very high levels, suggesting that there’s plenty of pent-up buying power to boost IYR higher. Let’s buy enough time to let the upside momentum take over. Buy the IYR September 60 Call for around $2.50.