We wrap up the first half of 20 on 20 with a surprised glance at the financial sector ETF, XLF. We predicted last month that financials would stay range-bound, between $15.50 and $16, and which it looked like we were right for a few weeks, we were ultimately proven wrong.
The ETF is now at annual highs, and we’ve got no sense for where it’s going. If our bearish market sentiment is correct we should see a pullback, and if you’re a “contrarian” trader you may consider taking some bearish debit trades. If not, you can stay back and wait until the ETF establishes a new trading range, which is what we’re likely to do.
Low-priced ETFs are nice for trading naked options as well, so if you were inclined you could consider selling a naked call above the ETF’s price. It’s not something we normally do, but there is enough precedent for this price level being the top of the range that a good argument could be made for selling over the top of it, especially since prices aren’t high enough to find a credit spread that meets our criteria.
As always, Options Strategy Alert members will get the first look at any new trade we put out, so be sure to sign up if you want to stay ahead of the pack!