In options activity on Tuesday we saw February 69 put buyers in XLV (SPDR Health Care Select Sector, Expense Ratio 0.16%) which are near the money puts and a very interesting trade given the fact that the top reporting components JNJ (>11.2%, Expected Earnings Release: 1/20), PFE (>7.5%, Erngs. 1/27/15), MRK (>6.2% Erngs. 2/4/15), GILD (>5.4%, Erngs. 2/3/15), and AMGN (>4.6%, Erns. 1/27/15) are all slated to release quarterly earnings results between now and February expiration.
XLV has had an impressive run relative to the S&P 500 year to date as well as in the trailing one year period, but after trading with a a $71 handle briefly yesterday at least some seem to be feeling some trepidation about
additional potential upside in the sector as is evident with recent put activity.
Then again, there has been notable buying in the marketplace via visible creation activity in XLV in recent days, pulling in >$800 million lately, so a Bull/Bear tug-of-war going into earnings season in the sector may be afoot.
Notably, as was not always the case in years past in XLV, the fund has significant “Biotech” exposure given its current index methodology evident by the weightings in names like GILD and AMGN for example, and it qualifies as the largest “Health and Biotech Equity” ETF in the U.S. listed landscape with about $13 billion in assets under management.
The second largest fund in this space is IBB (iShares NASDAQ Biotechnology, Expense Ratio 0.48%) which as its name suggests is strictly “Biotech” focused and would not invest in a broader Health Care company such as a JNJ for example. VHT (Vanguard Health Care, Expense Ratio 0.14%) has made its mark over time in pulling in new assets as well, as this is a fund with north of $4 billion currently.