XLK has been the sort of chicken way to play AAPL this year, as it has made up nearly 20% of the weighting of the Technology Select Spyder. When you look at the concentration of the top 5 holdings, what becomes apparent is that this is a very levered way to play the 5 biggest tech companies in the world, as AAPL, MSFT, IBM, T, & GOOG make up nearly 50% of the etf’s weighting.
The weakness is large cap tech shares since the Sept highs has not come as much of a surprise to us, we have been positioned for this from both fundamental and technical set up since the summer, but the dramatic change in sentiment and the subsequent stock weakness among once fortress stocks could present a near term trading opportunity. AAPL is down 25% from its all time highs in Sept, clearly dampening investor enthusiasm in the space. In that same period, MSFT is down 15%, IBM is down 12.5%, T is down 13% and GOOG is down 16%. While all had fairly disappointing results in the last few weeks, the recent weakness may be warranted as most of these stocks became very crowded trades, but my thought here is to play for a bounce based on near-term oversold conditions and fairly pessimistic sentiment.
TRADE: XLK ($27.70) Bought Dec 28 Calls for .49
Break-Even on Dec Expiration:
Profits above 28.49
Losses of up to .49 btwn 28 and 28.49 with max loss of .49 below 28.
ON A RALLY ABOVE $28 I WILL LOOK TO SPREAD BY SELLING A HIGHER STRIKE CALL.
THIS IS A SHORT TERM PLAY, PRIMARILY PREDICATED ON AAPL’S OVERSOLD CONDITION.