XLV, IBB, XBI In Focus Ahead of House Healthcare Vote

House Republicans are scheduled to vote today on the American Health Care Act (AHCA)

Mar 23, 2017 at 12:07 PM
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After a drop at the open, stocks are trading higher today ahead of a key congressional vote over the healthcare bill to repeal and replace Obamacare. Ahead of the critical House vote on the American Health Care Act (AHCA) -- which marks a major legislative issue for President Donald Trump and House Republicans -- the healthcare sector is in focus. Here's a quick roundup of how options traders have been lining up on the Health Care Select Sector SPDR Fund (XLV), the iShares Nasdaq Biotechnology ETF (IBB), and the SPDR S&P Biotech ETF (XBI) in recent weeks, and how the shares of XLV, IBB, and XBI have been performing on the charts.

Options Traders Bet On a Breakout for XLV Shares

Calls have popular in XLV's options pits. Call open interest topped out at a 52-week high of 386,126 contracts one week ago, but has since edged down to 249,065 contracts, still in the elevated 83rd annual percentile. While the April 77 call is XLV's top open interest position -- with 106,633 contracts outstanding, and nearly 98% of the action due to one options trader rolling her long March 76 calls up and out on March 13. Most active today is the weekly 3/31 75-strike call, where buy-to-open activity has also been detected. In other words, options traders are betting on a breakout for the shares by tomorrow's close, when the series expires.

Healthcare stocks, in general, are performing well, with 81% of the 31 names we follow under this umbrella trading north of their 80-day moving averages, according to our internal sector scorecard. While XLV shares are trading 0.2% higher today at $74.68, they are up 10% year-over-year. That's not to say the ETF hasn't struggled, though, with the shares of the Health Care Select Sector SPDR Fund down 3% since hitting an annual high of $76.75 on March 15, effectively forming a "triple top" at this familiar area of resistance.

xlv shares weekly price chart

Put Buyers Target IBB Ahead of House Vote

Put buyers have been active in IBB's options pits in recent weeks, per the ETF's 10-day put/call volume ratio of 1.12 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- in the 70th annual percentile. Echoing this is IBB's Schaeffer's put/call open interest ratio (SOIR) of 1.73, which is ranked higher than 80% of all comparable readings taken in the past year. Peak put open interest is found at the April 285 strike, and Trade-Alert suggests a number of these contracts were bought to open on March 13. Simply stated, options traders are betting on a move below $285 by expiration at the close on Friday, April 21.

Looking at the charts, IBB hasn't traded south of $285 since mid-February, with the shares last seen up 0.4% at $291.11. Since early November, the shares have been edging higher along a trendline connecting a series of higher lows, while the ETF's recent pullback from an early March double top near $303 was quickly contained by the iShares Nasdaq Biotechnology ETF's 50-day moving average.

IBB shares daily price chart

XBI Options Traders Eye a Quick Retreat

Short-term XBI options traders have tended toward the put side of the aisle, per the ETF's SOIR of 1.94 -- in the 68th annual percentile. This trend is especially evident among near-the-money options, as indicated by XBI's gamma-weighted SOIR of 2.14. Drilling down, the April 65 put is home to peak front-month open interest, with 18,245 contracts in residence. It looks like a bulk of the activity occurred yesterday, when two large blocks may have been bought to open. In other words, options traders expect XBI to retreat below $65 in the next several weeks.

Technically, XBI hasn't explored the south side of $65 since early February, and is up nearly 17% year-to-date to trade at $69.00. What's more, the shares of the SPDR S&P Biotech ETF hit an annual high of $72.58 on March 15, but have since pulled back to support from their rising 40-day moving average -- a trendline that currently coincides with the ETF's mid-November highs and a 23.6% Fibonacci retracement of XBI's November-to-March surge.

xbi shares daily price chart

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