TheOptionPlayer.com sets up a Biotechnology Index ETF (NasdaqGM: IBB) short-term (36-day) option trade (based on Thursday’s closing quoted bid/ask prices)
Investors could simultaneously:
The difference between funds received and paid out is an approx. 13% profit if the Biotechnology Index ETF closes below $116 on Friday February 16th, but immediately execute a trade adjustment if it appears the price is moving higher. If the price gaps higher at the start of trading we might revise the strike prices. See Guidelines page at www.theoptionplayer.com/ for explanation on how trade is set up.
Why we recommend it:
• The tax credit for Biotechnology companies to develop drugs for rare diseases has been cut in half in the new tax law. Under current law, they can deduct 50 percent of the cost of testing drugs for rare or orphan diseases that affect only small numbers of patients. The revised bill cuts that amount to 25 percent.
• As confirmed in the chart below the Biotechnology Index ETF (NasdaqGM: IBB) not nearly as bullish as the major stock indices.
• Other equity indexes surged even higher today, but the IBB ETF is overbought and the price is stabilizing to absorb the overextended condition.
• The major stock indices are reaching daily all-time highs, but the Biotechnology Index is trading well below its 52-week high.
• You can see the IBB ETF has been trading range-bound the past week and momentum has been relatively flat all year compared to the other major indexes.
• We recently closed out a series of similar trades that were profitable and if the current technical signals play out as indicated, the IBB ETF will not make a series of all-time highs required to be above our short call on the February 16th option expiration date.
52-Week High: $114.17
52-Week Low: $88.96
Regular www.theoptionplayer.com subscribers can attest to the preponderance of successful trades published on this website.