LABU - LABU Continues In Uptrend (Technical Analysis)
- During July, LABU traded in a narrow range. In August, its uptrend has resumed.
- We expect that LABU’s uptrend has a long way to go.
- A block of LABU trades started on July 21 has done extremely well so far.
- A paper trade done on SPXL is shown for comparison.
Investment Thesis
On July 8, Seeking Alpha published my article where I rated [[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.
stockcharts.com stockcharts.com
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.
stockcharts.com stockcharts.com
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% |
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% |
Conclusion
LABU presents a profitable investing opportunity. LABU is a BUY.
For further details see:
LABU Continues In Uptrend (Technical Analysis)