By: Steve Smith
Stocks took a scary dip last week, but no technical indicators were broken and the bullish bounce still seems in effect. With this in mind, I’m looking to add a bullish position in a couple of individual names while overwriting them with a bear call spread in the “Nasdaq (QQQ – Get Rating)” as a means of both hedging and collecting short term premium.
As I mentioned in last Friday’s article, the generals, better known as FAANG or the big five, those being Apple (AAPL),” “Microsoft (MSFT),” “Amazon (AMZN),” and “Alphabet (GOOGLE)”, which now represents 42% of the QQQ, cannot continue to lead the indices much higher without the middle-level soldiers following.
With that in mind, I hunted for some names that I believe have upside but wanted to sell a QQQ bear call spread to create a customized “overwrite or covered call to my portfolio, which provides a slight hedge and helps mitigate adverse headwinds inherent to options such as theta decay.
The first name I added was “SPDR Biotech ETF (XBI) “ it’s comprised of names such as “Regeneron (REGN)” and “United Therapeutics (UTHER)” but none of the over 122 names account for more than 3.5% weighting. It’s a field bet on the smaller biotech stocks. And right now, it’s hot for the obvious reasons; COVID and gambling on COVID.
The ETF has been strong, pushing to new highs on Friday and holding steady above $106 support today. I don’t… Continue reading at StockNews.com
Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.