The Canadian market has been working higher over the last 6 weeks. The XIU has now finished a technical move higher towards the $18.00 level while almost exclusively being driven by the Canadian Financials, particularly the Tier 1 banks.  In the same regards, the energy and material sectors have not participated.  If the XIU is destined to move higher, it will need to be on the back of a much broader based rally as it is unlikely that the overbought and overstretched financials alone will have the strength to continue to drive the XIU higher.

For those that are long the Canadian financials, this is a reasonable time to consider a collar strategy. This may be appropriate if you feel there is only marginal upside left and a reasonable risk of the sector beginning a profit taking cycle. The collar strategy requires the investor to sell a covered call on the stock and use the proceeds to buy a protective put in order to hedge the downside risk out of the position.

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, CMT CIM DMS
Chief Derivatives Market Strategist
www.optionsource.net