Options Activity Shows Traders are Betting on a Recovery for This Health Care ETF

Health Care stocks have gotten beaten up a bit in the latter part of August, with the benchmark Health Care SPDR ETF (NYSE:XLV) (Expense Ratio 0.15%) plunging below its 50 day MA five trading sessions ago, and failing to get back above this level.

Trading volume in the ETF has been about average lately, but yesterday we saw some interest in upside calls in the product, specifically the October 75 strikes. About 40,000 contracts traded yesterday, and this could be someone positioning for a potential bounce in the sector in the next several months.

On the first of the month, XLV traded as high as $76 before regressing to present levels below $73. XLV has had a hard time year-to-date in terms of asset flows, with about $1.3 billion leaving the doors in 2016.

The Top 5 holdings in XLV are as follows:

  1. Johnson & Johnson (JNJ) – 12.44%
  2. Pfizer (PFE) – 8.03%
  3. Merck (MRK) – 5.94%
  4. UnitedHealth (UNH) – 5.02%
  5. Bristol-Myers (BMY) – 4.58%

In spite of 2016 outflows, XLV is still the largest Healthcare ETF in the U.S. listed landscape, ahead of iShares’ IBB (Nasdaq Biotechnology, Expense Ratio 0.48%) which has $7.3 billion in assets under management. Other prominent Healthcare ETFs include VHT (Vanguard Health Care, Expense Ratio 0.12%), XBI (SPDR S&P Biotech, Expense Ratio 0.35%), and IYH (iShares U.S. Healthcare, Expense Ratio 0.43%), to name some of the larger funds in terms of asset sizes.

These ETFs may very well be in play over the next few weeks, given the options flows in XLV. CURE (Direxion Daily Healthcare Bull 3X, Expense Ratio 0.95%) should be on radars in the short term as well, given the XLV options trading and the volatility in the space during the month of August. This fund has $223 million in assets under management, which includes outflows (like XLV action year-to-date) of about $88 million. CURE tracks the same underlying index as XLV, the Health Care Select Sector, but on a daily three times levered bull basis.

RXL (ProShares Ultra Health Care, Expense Ratio 0.95%, $86 million in assets under management) is ProShares entry to the levered bull Health Care space, but this fund tracks a different index than XLV and CURE, known as the Dow Jones U.S. Health Care Index (which is the same index that IYH tracks) on a two times daily levered basis.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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