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On the watch: shorting iShares Nasdaq Biotechnology ETF (IBB) via put options

Davis MartinDavis Martin ·

The setup: We’ve seen a tremendous run in the biotech sector recently, to the point where entering long positions for anything other than a day trade, in my opinion, is just chasing. The sector has run up for a couple reasons. 1) Politics. I don’t get in to politics, but selling the news and the headlines is common and popular for a lot of traders. 2) Traders look for what is moving. Well, to me it’s obvious that Biotech has been moving.

The chart and the analysis: Take a look at this chart and notice that on 6/20/2017, with an inverted hammer candle and indicators suggesting that it was time to start building a short position.

Well, that was a total head fake. I noticed yesterday toward the close that it was doing the same thing. Pattern recognition accounts for a large amount of my swing trades. I said no thanks to buying to open put options due to a previous head fake only two sessions ago. Being patient saves you a lot of money in the stock market.

What I’m looking for: I’m writing this before the market opens and a lot can change in the pre-market. I want to see profit taking and buy to open low-risk put options on IBB if the opportunity presents itself.

August’s puts, trading around $11/contract could return 10 percent or more in a couple of days if IBB drops to first support which I’m seeing at $308.50 from its current price of $321. If IBB goes up again today, I’ll write it off and wait until next week.


   Davis Martin is the publisher of DailyProfitMachine.com. He trades SPY calls and puts and swing trades mid-large cap stocks and stock options. He has never traded IBB.


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