S&P Biotech 3x Shares ETF Continues In Uptrend (Technical Analysis)

Investment Thesis

On July 8, Seeking Alpha published my article where I rated NYSEARCA:LABU as a BUY. LABU is a 3X leveraged ETF of the biotechnology sector. When analyzing LABU’s prospects, it is ok to use its non-leveraged counterpart, XBI – the SPDR S&P Biotech ETF.

In that article, I published a chart dated 21 June when I decided to write the article. For putting things in perspective, I republish that chart, together with an updated version for August 10.

We see that in the first half of July, XBI increased its relative strength to SPY, but during the second half XBI’s relative strength declined from the 50-day MA to the 200-day MA. Since the beginning of August XBI’s relative strength increased a great deal and it sits now well above its 50-day MA.

Below we show the charts of XBI and LABU. The charts are identical, except for the price values.

XBI – LABU – SPY – SPXL Relationships

XBI is a non-leveraged biotech ETF, while LABU is 3X leveraged of the same.

SPY is a non-leveraged ETF for the S&P 500 index, while SPXL is 3X leveraged of the same.

XBI has low correlation with SPY. The same applies to the LABU, SPXL pair.

Trade Examples

On July 21. I executed a block of trades with LABU. For comparison purposes, I also paper-traded the same block with SPXL. The results of the trades at the market close of August 10 are shown in the following two tables.

LABU trades 0n July 21:

Buy 100 shares of LABU at $9.60. Sell one $10 call, expiration 9/16 at $1.80. Sell one $10 put, expiration 9/16 at $2.25. Buy one $10 call, expiration 12/16 at $2.90

The put should be guaranteed with a cash position of $775.

	Asset	Quantity	Expiration	Strike Price	Buy/Sell Price	Aug 10 Price	Gain/Loss
LABU	shares	100			$9.60	$12.54	$294
	C	-1	9/16/2022	$10	$1.80	$3.40	($160)
	P	-1	9/16/2022	$10	$2.25	$0.85	$140
	C	1	12/16/2022	$10	$2.90	$4.70	$180
CASH for PUT	$775						$454
TOTAL FUNDS	$2,025						22.42%

Click to enlarge

SPXL paper trades on July 21:

Buy 100 shares of LABU at $73.30. Sell one $75 call, expiration 9/16 at $7.05. Sell one $75 put, expiration 9/16 at $8.20. Buy one $75 call, expiration 1/20/23 at $13.25

The put should be guaranteed with a cash position of $6,680.

	Asset	Quantity	Expiration	Strike Price	Buy/Sell Price	Aug 10 Price	Gain/Loss
SPXL	shares	100			$73.30	$89.03	$1,573
	C	-1	9/16/2022	$75	$7.05	$16.00	($895)
	P	-1	9/16/2022	$75	$8.20	$1.95	$625
	C	1	1/20/2023	$75	$13.25	$22.70	$945
CASH for PUT	$6,680						$2,248
TOTAL FUNDS	$15,335						14.66%

Click to enlarge

Conclusion

LABU presents a profitable investing opportunity. LABU is a BUY.