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While my indicators are giving neutral readings this week, the third quarter is usually relatively weaker than any other time of the year, so my call to maintain a more defensive portfolio still stands at this point.
One of the biggest negative signs for the market right now is that the financial stocks have been underperforming. For example, the Financial Select Sector SPDR Fund (NYSEARCA:XLF) recently posted a record 13 days of losses in a row in June before snapping that streak at the start of this month. XLF bounced briefly earlier this week, but it remains below all of its major moving averages.
The flattening of the yield curve between short-term rates and longer-term rates is starting to take a toll on the banks and, while they will surely find other ways to make money, this kind of action in rates has typically been seen before recessions in the past. In general, there is a lot of uncertainty swirling in the markets, and that’s really the last thing that investors want.
However, one stock I’ve had my eye on recently for a bullish play is Gilead Sciences (NASDAQ:GILD), which has jumped from the $72 level to over $76 in just the last three sessions. Considering the spike in the shares, I don’t want to chase it with call options. Instead, I’m electing to write a put on the stock, as I think it will easily stay above support at $72 by expiration on Aug. 3.
Sell to open the GILD Aug. 3rd $69 put at about $0.28.
For those who may not have used this strategy before, with these naked put writes you want the underlying shares to move higher or at least remain above your strike price through expiration. This would allow you to walk away with no further obligation and full profits.
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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.
