A great potential trade opportunity just popped up and I wanted to get it to you as quickly as possible. The ticker is XLI while it might be tempting to jump in and just go buy shares, I am going to explain why it is a good set up and how options offer great potential upside for this ETF.

The Industrial Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Industrial Select Sector Index. 

Now, let’s look at the chart and I’ll explain why it could be a winning ticket.

Buy the XLI ETF

As the chart shows, on November 28th, the XLI 50-Day EMA, crossed above the 100-Day EMA. This crossover indicated the buying pressure for XLI exceeded the selling pressure.

Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the ‘buy’ signal is still in play. As long as the 50-Day EMA remains above the 100-Day EMA, the ETF is more likely to keep trading at new highs and should be purchased.

How I Would Profit if XLI is Up, Down or Flat

Now, since XLI’s 50-Day EMA is trading above the 100-Day EMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for an XLI call option spread.

The analysis reveals that if the XLI ETF is flat, up at all, or down 7.5% at expiration the spread will realize a 65.6% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 65.6% profit potential when the trade was identified*.

The prices and returns represented below were calculated based on the current ETF and option pricing for XLI on 2/22/2024 before commissions.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader. 

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

Trade High Priced Stocks for $350 With Less Risk

One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, or Netflix for as little as $350. With an option spread you can control 100 shares of Netflix for $350. If you were to purchase 100 shares of Netflix at current prices it would cost about $59,000. With the stock purchase you are risking $59,000 but with a Netflix option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.

🚀Elevate your portfolio with Chuck’s Lifetime Income Program for exclusive, actionable call option spread recommendations along with a treasure trove of trading insights!

Wishing You the Best in Investing Success,

Chuck Hughes

Editor, Trade of the Day

*Trading incurs risk and some people lose money trading.