In late May we looked at XLV and decided to play for a possible breakout with defined risk. Here was the initial trade:
*XLV ($71) Buy the July 71 call for $1.25
Break-even on July expiration:
Rationale – If XLV plays catch up with the broader market and some of its biggest holdings are able to break out the etf could work its way back towards its highs over the Summer. This simple call purchase can be spread to reduce premium risk on moves higher and we’ll keep a 50% premium stop in case it goes lower from here over the next few weeks.
Since then the stock has sold off with the broader market on Brexit and recovered entirely, now slightly higher than our entry. The issue though is that the trade is running out of time and is not even above our breakeven level of 72.25. If the post Brexit market rally were to fail here there may not be enough time for XLV to breakout. Therefore we’re going to close the trade and look for a better entry and more time if we were to see it lower on another round of broader market selling: