XIU Continues to Fight Overhead Resistance
- Posted by pceresna on November 26th, 2009 filed in Options Market
We have for months been observing the stong overhead resistance at the $17.50-$18.00 area on the iShares S&P/TSX60 ETF (XIU). We yesterday had a technical reversal candle come in to mark a short-term pull back. It will be critical to see if there is strong follow through selling in the next few trading sessions. If all of the XIU selling is contained to the $16.75 area, then we still cannot rule out another thrust higher in the markets. In the same regards, strong technical selling down to the $16.00-$16.25 area will mark a technical topping formation that could lead to a multi-month correction.
As Richard Croft observed in his November 22nd blog posting “Risk Aversion”, the volatility premium in protective puts is still reasonably priced. If an investor was to share our technical concerns, it may be a consideration to hedge your portfolio by buying XIU puts to reduce risk exposure in being fully invested in the markets.
Watch our Canadian Market Minute video for more details.
http://www.optionsource.net/mediaplayercanadian.php
For more information on the XIU options, click here.
Regards,
Patrick Ceresna
December 9th, 2009 at 2:35 pm
The XIU is not leveraged. So at $17.00, each 100 shares represents $1700.00. So your math is right.
Creating a debit spread to hedge only the immediate downside risk is a good way to reduce the cost. Just recongnize that you would lose the benefit of the protection below that January $16.00 strike.
December 9th, 2009 at 3:25 am
patrick;
the xiu puts look like reasonable insurance. my first question is who bought and sold 35K put options, feb 2010, $16 strike?
Next question; if your are using the xiu puts to protect a portfolio, how many put options would cover say a $170K portfolio? 100?
$17 X 100 shares X 100 contracts = $170,000
assuming you used the March 17 puts at $1 each, that is $10,000. is my math correct?
Any comment on spreading the long puts against , say a short january 16 put to reduce the cost? then feb, etc.
Thanks
Ed ooout