The brief ruckus around inflation forcing the Federal Reserve to pause earlier this week just didn’t last. Meanwhile, the utilities have come rushing back – and my call option recommendation on the Utilities Select Sector SPDR ETF (XLU) is back in the money now, notes Hilary Kramer, editor of 2-Day Trader.
If resurgent inflation and the prospect of no rate cuts ahead can’t push volatility higher, then it’s time for volatility to recede. After all, there’s no technical support here for the S&P 500 VIX Short-Term Futures ETN (VXX) and no big pool of money demonstrating that there’s a will on Wall Street to make the world more frenetic and less stable.
That’s not how Wall Street operates. Things always calm down, usually within a matter of days.
Utilities Select Sector SPDR Fund (XLU)
As for XLU, barring a relapse, our calls will be worth something even if we hold them to expiration and then exercise. The only question is whether they’ll be worth more than we paid in the first place. For that to happen, XLU needs to at least test $80.50 in the next two weeks.
Can we get that? XLU hit $80.44 just three weeks ago. That’s the only resistance left on the chart. If we hit it, we’ll get an easy shot at exiting at a wash at worst and ideally grab a win.
From there, resistance emerges again at $82.72. Big win in that scenario. That’s why we’re hanging on.
Right or wrong, we keep trading. Money that isn’t working faster than cash is dead money. And while we don’t hit every pitch, the returns that we get when the risks go our way are big enough to keep swinging.
Where is the market going? We’re still biased toward the long side, arguing that XLU will go up and volatility itself will go down.
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