By Nicolas Chahine, InvestorPlace Contributor|May 23, 2017, 1:28 pm EDT <\/p>\n<\/p>\n
The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) is technically tight and a move is coming. While the direction of which is uncertain I am willing to cautiously bet that it will be upwards. <\/p>\n
After all, this is an uber-bullish equity market and it will take a really negative headline to cause a selloff, so betting long is easier than shorting. Even when we do sell off, buyers are buying every dip. <\/p>\n
Originally I was looking to trade several biotech tickers, but the list got so long that I decided to cast a net over the sector rather than fish with a hook. This will also make managing the risk more streamlined. It came down to a toss-up between IBB and theSPDR S&P Biotech (ETF) (NYSEARCA:XBI). <\/p>\n
Click to Enlarge I chose the IBB because it offers me bigger absolute returns with clear levels. <\/p>\n
Other names I considered included large components of the ETF so the logic is the same but the vessel has a different ticker. Besides, selling risk on an ETF reduces the chances of a single stock headline which is common among biotech companies. <\/p>\n
Fundamentally, the IBB carries a high ticket price but is not currently over-inflated. Four of its top six largest components have shed a lot of froth recently so they shouldnt have far to go without a change in the macro. At almost $300 per share its a tall order to buy outright for most investors but using spreads delivers profits without much risk as this April trade did for me. <\/p>\n
The weekly chart shows clear levels where markets avoid, one above $315 and the other below $250. <\/p>\n
The Trade: Sell the IBB Dec $245 put and collect $5.50 per contract. Here I have a 90% theoretical chance of keeping my maximum gains. If price falls below $239.50 then I accrue losses there and lower. <\/p>\n
Usually I like to balance my trades by selling opposing risk. But since my thesis today revolves around a directional move, I will opt out from selling call risk. Instead, I could even add to the potential profits by adding more positive bias. But I will delay entry for now. <\/p>\n
The Juice (Optional): Buy the IBB June 30 $295\/$300 debit call spread for $2.30. If price rallies past my spread I stand to double my money. <\/p>\n
While adding the optional calls may seem aggressive but its not. I dont even need a rally to profit. As long as IBB stays above my sold puts, any premium I recapture from selling my debit calls spread would be pure profit. <\/p>\n
Selling puts is risky business so I only risk what I can afford to lose. <\/p>\n
Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernicand stocktwits at@racernic. <\/p>\n
Article printed from InvestorPlace Media, http:\/\/investorplace.com\/2017\/05\/ishares-nasdaq-biotechnology-index-etf-ibb-etf-board\/<\/a>. <\/p>\n 2017 InvestorPlace Media, LLC <\/p>\n <\/p>\n Read the rest here: By Nicolas Chahine, InvestorPlace Contributor|May 23, 2017, 1:28 pm EDT The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) is technically tight and a move is coming. While the direction of which is uncertain I am willing to cautiously bet that it will be upwards. After all, this is an uber-bullish equity market and it will take a really negative headline to cause a selloff, so betting long is easier than shorting Continue reading
\nThe Move in iShares Nasdaq Biotechnology Index (ETF) (IBB) ETF Is Coming -- Get on Board - Investorplace.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"