Materials Select Sector SPDR (XLB)
By Rick Pendergraft, Editor of Cabot Options Trader
From Cabot Wealth Advisory 6/6/11 Sign up for free Cabot Wealth Advisory e-newsletter
The one ETF I'm watching the most closely is the Materials Select Sector SPDR (XLB). I believe the demand for basic materials like steel and copper will continue to increase as countries like China and India grow at a faster pace than the more developed countries.
As with the chart of the S&P, the ETF marks a clearly defined channel with a midway line. In recent weeks, the ETF has pulled back from the upper rail and is now sitting at the midway line. You could choose to wait and see if the ETF drops down to the lower rail before adding the XLB to your portfolio, or you could add it now. I intend to play it another way.
I intend to buy 100 shares in my IRA over the next few days here at the midway point of the channel, and then sell a September 35 Put on the XLB as well. If the XLB drops down below the $35 level and the stock gets put to me, I'm OK with that because that would make my entry price somewhere around $34.25 based on what the option is selling for right now. This would give me the full allocation of 200 shares that I seek.
If the ETF rises from here, I have some exposure. If it drops down to the lower rail, the put gets exercised and I will own the 200 shares I want. In the meantime I have also collected the premium on the September 35 Put.
So don't get overwhelmed with all the information that's available for analyzing a potential investment. Using trend channels can help you better time your entry points, but the most important way to avoid analysis paralysis is to just keep things simple and stick to your system.
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Options Analyst and Editor of Cabot Options Trader
Rick Pendergraft has spent over 20 years studying, trading and writing about the investment markets, specializing in derivatives investing, technical and sentiment analysis. Rick spent 10 years working for two of the largest financial publishers, Schaeffer’s Investment Research and Investor’s Daily Edge, before joining Cabot. His proprietary automated scan based on characteristics of past fast moving stocks produces a daily list of bullish and bearish stocks that is at the heart of the Cabot Options Trader.
|Materials Select Sector SPDR (XLB)
|Category: Natural Resources
Fund Family: State Street Global Advisors
Net Assets: 2.65B
Fund Inception Date: December 16, 1998
Legal Type: Exchange Traded Fund