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Looking back, most people were pretty bearish going into 2017 because of the election and a number of other factors. As a result, many investors were all in the same bearish camp. However, that is when things tend to start going the other way, and these investors that jumped in late helped to fuel last year’s rally as well.
We will start to see whether that optimism has been converted into sales this earnings season, which will get into full swing in the next few weeks. In the meantime, I’m looking to trade one of my favorite bullish themes: biotech.
Here’s my recommendation for a put credit spread on iShares NASDAQ Biotechnology Index (ETF) (NASDAQ: IBB):
Using a spread order, sell to open the IBB Feb. 16th $100 put and buy to open the IBB Feb. 16th $93 put for a net credit of about $0.30.
Note: There are several February expirations available for IBB options. Be sure you are opening the monthly options that expire on Friday, Feb. 16, 2018.
A put credit spread is a bullish position that involves writing (selling to open) an option and simultaneously purchasing (buying to open) an option at a different strike price in the same underlying security. The position, or leg, of the spread trade that you sell gives you a cash credit to your trading account. The option you buy limits your risk and lowers your margin requirement for the trade.
This is a bullish trade in which you want the underlying share price to stay above the upper strike price of the spread. In this case, we want IBB to stay above $100 through the Feb. 16 expiration. As long as it does, we’ll fulfill my goal of walking away with full profits — 100% of the option income we make today.
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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.
