The low volatility of XLB options may be of interest to traders — CNBC
The materials sector may be of interest to options traders due to the relatively low cost of contracts for the State Street Materials Select Sector SPDR ETF (XLB). Michael Howe wrote about this in a CNBC article, highlighting the fund’s options’ low implied volatility.
According to CNBC, the one-month implied volatility of XLB options with strike prices close to the fund’s current price was just over 14%. Over the past five years, its average level was 19.5%, with a high of 47.25% and a low of 11.8%. Thus, XLB options were trading closer to their five-year low than to the average for that period.
The materials sector was among the week’s top performers and has outperformed the S&P 500 index since the beginning of the year, gaining nearly 17%, the author notes. How attributed this trend, in particular, to the development of infrastructure for artificial intelligence, which requires copper, chemicals, and construction materials. He also pointed to support for precious metals.
For more breaking news, follow the UA.News Telegram channel.
According to Howe, for an option buyer, the risk on a long position is limited to the premium paid, and a lower premium can improve the potential risk-to-reward ratio. As an example, he cited September XLB call options with a strike price of $52.50, which cost about $1—less than 2% of the fund’s price at the time. According to his calculations, the breakeven point for the buyer of such a contract was $53.50, or 1.9% above XLB’s closing price on Thursday, four weeks before expiration.
The author also noted that traders with a negative view of the sector might consider September XLB put options with a strike price of $52.50 instead of shorting the ETF. CNBC emphasizes that the views expressed by CNBC Pro contributors are their own and do not constitute investment advice.
