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Trade of the Day: Technology Select Sector SPDR Fund (XLK)

Ken Trester

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While we are now in the summer months, which tend to have a slight negative bias, we’re unlikely to see any big moves to the downside with the S&P 500 Volatility Index (INDEXCBOE:VIX) trading this low. We’ll want to keep a close eye on the VIX for any signs of stress, of course, and I would plan to get much more defensive if it trades up to the 17 level again.

The potential for a trade war is still a bearish factor for stocks, but the market seems to be largely ignoring that issue right now. This is somewhat evident in the Nasdaq and the Russell 2000, though, as these two indices have been leading the market because their components have less international exposure.

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Today, I’m recommending a bullish trade on tech stocks — specifically, a naked put write on the Technology Select Sector SPDR Fund (NYSEARCA:XLK):

Sell to open the XLK July 13th $66.50 put at about $0.27.

With this position, we’ll look to collect our put premium upfront and simply hold through expiration. As long as the ETF remains above our $66.50 strike price through July 13, we’ll walk away with no further obligation and full profits.

But I think this ETF is going up; as I said, the Nasdaq has made a new high, and there’s a lot of money flowing into tech — it’s been a popular place to be for a while. With shares above $71, we have some nice room between the current price and our strike.

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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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