[Options] Healthy Tech

Sean McLaughlin
January 18, 2023

I'm about to show you what a healthy chart off the bear market lows looks like. One of the beautiful things about this chart is it's not heavily reliant on any one company.

This is a sector ETF for a corner of the stock market we believe should continue to do well for the foreseeable future. There will be winners and losers within the sector, and we don't know which ones will ultimately be the leaders, so why not just trade 'em all?

Additionally, trading the sector ETF significantly lessens any earnings-related or product announcement or FDA-approval-driven gap risk.

Here's the chart of the Biotech ETF $IBB:

Look at that beautiful base.

We're making a long(ish) term bet that this base will be a launching pad for a run back to all-time highs north of $175 per share.

Implied volatility in $IBB options is at the lowest levels of the year, making options premiums pretty cheap in relative terms:

Here's the Play:

I like buying $IBB January 165 calls for approximately $4.50 per contract. This gives us exposure to upside resolution for 12 months. And our risk is neatly defined by the premium we pay today. We can't lose any more.

Of course, I'd rather not lose 100% of this investment if I can help it. So I'll be leaning against the $130 level for support. Any $IBB closing price below $130 per share is my signal to exit the trade and protect my remaining capital. This is the market telling me I'm wrong or early. I don't like being either.

If $IBB starts making a meaningful move higher, I'll look to sell half of these calls at double the price I paid in order to remove my original risk capital from the trade. Then I'll have a #FreeRide on the rest into January 2024. That would be sweet!

If you have any questions on this trade, please send them here.

ASO subscribers who missed last week’s live video Jam Session where we reviewed activity in our options portfolio from the past week can catch it here.

~ @chicagosean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.

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