S&P Biotech ETF (XBI)

By JC Parets Thu, Dec 9, 2021

We’re looking at today’s Chart of the Week a little differently than usual…

Some sectors have been taking a beating this year, like airlines and ARK funds.

But we’re looking at Biotechs, which have been getting slaughtered since February.

Specifically, at the S&P Biotech ETF (XBI).

Here’s the recent volatility spike in XBI options.

We’re betting on a short-term bottom that will hold for at least a couple of weeks.

I like selling short XBI January 105 Puts for approximately $2.25 per contract. 

These will be naked short puts and therefore will require margin to hold the position. This also means we’ll have theoretically unlimited risk in the trade, so we’ll want to keep our risk management on point.

We’ll look to cover for half of what we collected at initiation, leaving a resting order to close at around $1.10 per contract.

We’re playing the volatility here, but for anyone looking to make a more straightforward play and buy the ETF directly, we’re eying the 110 level with a target of 135.

Til next week, good trading,

JC Parets

About the Author

JC Parets, founder of All Star Charts, specializes in finding the most opportunistic risk vs. reward propositions while at the same time bringing a top/down approach to the marketplace whose wide spectrum is rivaled by few. JC begins with a long-term global macro perspective and then works his way down to the individual sector and industry level before ultimately isolating the stocks that best portray a particular thesis. Price is the most important technical indicator, but JC uses supplements such as Momentum, Relative Strength, and Fibonacci analysis to complete the process.