Intraday Market Notes & Observations – April 15

2:00pm ET:  Inject your portfolio with a dose of healthcare
Tags: Healthcare ETF, XLV, call debit spread, options

The widely traded Healthcare ETF (XLV) broke a two week consolidation by gapping up 1%. While that’s not particularly earth-shattering, the fact that the stock has risen over 20% since last September is nothing to sneeze at. It’s only three points away from its all-time high of $37 and is looking to make a run at it.

The question now is: How long will it take to get there? Well, it’s taken the stock eight months to gain six points (3/4 of a point per month) so our time horizon should be set for at least four months.

For safety’s sake (and since this is an options play), I’m going to look at the January 2012 calls to generate a 34/37 call debit spread. This means I’ll be buying the January 34 call. now trading at $1.75, and selling the January 37 call, currently going for $0.50. That will give me a cost basis of $1.25 and a potential maximum profit of $1.75 (the difference between the stike prices less the cost of the spread) giving a maximum realizable ROI of 140%.

Note that these options are quite liquid; the open interest (OI) on the 34 call is 2.16k and 31.3k on the 37 call.  The weekly chart of the XLV is shown below along with major support and resistance levels.


1:15pm ET: Intraday support/resistance
SPX 1314/1326
DTX 524.5/530.5
DJIA 12275/12375
Nasdaq 2745/2775
OEX 586.75/591.75
VIX 14.9/16.0
Trin range: 1.0 – 1.4 (neutral)
Average VWAPs: +72/-24 (moderately bullish)

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