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Trade of the Day: Health Care SPDR (ETF) (NYSEARCA:XLV)

“Trump Rally” stocks are overblown; time to look at health care


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Here in this bullish period before President-elect Donald Trump is inaugurated, I’m looking for bullish positions — albeit selectively.

One particular area that the bulls have been running to is the financial sector, but the banks stocks are way overbought in the short term, so I’m expecting some kind of pullback there before too long. On the other hand, I think there is still a lot of value in health care stocks. In general, they’ve been lagging the S&P 500 lately, so I’m anticipating a rebound eventually as investors rotate back into that space.

As such, let’s take this chance to get bullish on Health Care SPDR (ETF) (NYSEARCA:XLV) via a naked put write:

Sell to open the XLV Jan. 20th $66 put at about $0.35.

For those who aren’t familiar with this strategy, the basic premise for a naked put write is to sell (also called “writing”) put options and thereby get income upfront in the form of the option premium. By selling a naked put, you’re betting against the buyer of that put option, who thinks that the underlying stock is going down.

As the seller, you’ll want to watch for a drop below $66. If the buyer is wrong and the stock goes up, the put will expire worthless — so, as long as XLV remains above $66 through expiration, you (as the seller) would have no other obligation and would simply walk away with 100% of the option premium you collect today.

Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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