[Options] Buy the Biotech Sector

Sean McLaughlin
March 11, 2024

Steve Strazza and I hosted another Flow Show today on Stock Market TV and discussed opportunities in the Biotech space.

Starting at an index level, we see that biotechs are clearing a base and appear set on breaking out:

From there, we started diving into some individual biotech names to play the breakout, but many of the charts offered unique challenges that made it tricky to pick one to take the most advantage or the sector breakout.

So when that happens, sometimes the best move is simply to buy the index!

And that's what we're going to do here, using the sector ETF $XBI as a vehicle for expressing our bet.

Here's the Play:

I like buying an $XBI September 100/120 Bull Call Spread for approximately $6.25 net debit. This means I'll be long the 100-strike calls and short an equal amount of 120-strike calls:

The most we can lose if we're dead wrong is the $6.25 we pay today. But I'll look to exit the spread under one of two conditions:

  1. the spread loses 50% of its value. Or,
  2. $XBI sees a closing price below $95 per share at any time during our hold.

In either case, the market will be proving to me that I'm either early or wrong. I don't care which, I'll just want out.

If $XBI follows through to the upside, I'll look to take profits if/when $XBI trades above our short strike -- $120 per share. The amount of our gain at that point will depend on how close we are to the September expiration date. The closer we are to expiration, the larger the potential profit.

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

If you missed last week’s video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

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: 323-421-7910.

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