Generate Income With This Trade on the Struggling Healthcare Sector


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This morning I am recommending a bullish trade on the Health Care Select Sector SPDR Fund (NYSEARCA:XLV).

Last week, I talked about the potential rise in oil and energy stocks now that the price of crude oil is above $60 per barrel. Another area of the market that looks interesting is the healthcare sector.

A Premature Decline

Healthcare stocks, as represented by the XLV, fell by more than 5% last week. Many people are attributing the healthcare sector’s decline to discussions about Medicare-for-all. If that’s the case, I think it’s a premature selloff.

Congress hasn’t passed any legislation related to healthcare, and any major changes to the U.S. healthcare system wouldn’t be possible until after the 2020 election.

Also, given the aging demographics of the U.S., I think healthcare stocks are a great long-term bet for investors. I am not ready to say that last week’s decline is over, but I do think the sector will rebound.

Starting to Find Support

If we look at the daily chart of XLV, we see the stock might be forming support at around the $86 level. Again, it’s too soon to declare XLV has found a bottom, but we may see it turn to the upside after bouncing off $86.

Daily Chart of Health Care Select Sector SPDR Fund (XLV) — Chart Source: TradingView

If XLV doesn’t turn around, it could head towards its December lows just above $80. Some investors might be concerned about that possibility, which has raised premiums on XLV options. We can collect income by selling puts with a strike around that level, which is why I recommend the following trade:

Sell to open the XLV May 17th $79 put at about $0.33.

Note: There are several May expirations available for WFC options. Be sure you are opening the monthly options that expire on Friday, May 17, 2019.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase. If you are holding the option at expiration and XLV is trading below the $79 strike price, you will have to purchase 100 shares of XLV at $79.

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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.

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