With geopolitical tensions boiling, investors may want to consider defense stocks.
Ukraine just launched a massive drone raid on an ammunition facility in Russia. And, according to Kyivpost.com, it “was likely the most damaging long-range attack launched by Kyiv in 30 months of combat, and possibly the most devastating air strike ever to hit Russia.”
Vladimir Putin has also warned it would be at war with the U.S. and allies if it lifts restrictions on Ukraine’s use of long-term Western weapons.
“We are not talking about allowing or not allowing the Ukrainian regime to strike Russia with these weapons,” Putin added, as quoted by NBC News. “We are talking about deciding whether NATO countries are directly involved in the military conflict or not.”
Tensions between Israel and Hezbollah are also boiling over.
All of which could require even more spending on defense.
That being said, investors may want to jump into defense ETFs including:
SPDR S&P Aerospace & Defense ETF (XAR)
The SPDR S&P Aerospace & Defense ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Aerospace & Defense Select Industry Index. Last trading at $154.20, we’d like to see it closer to $170.
Every month nearly all options, both put and call options, expire worthless, meaning that the overwhelming majority of call and put buyers lose money. That must mean that simply reversing that concept and selling options should be highly profitable. But strangely, that is not often the case.
Although the option seller will be successful very often, it will take just one or two losses to wipe him out. When you sell options your gain is limited to the amount you sold the option for, less commission and fees. Your risk, on the other hand, is unlimited. To do this type of trading successfully you must rid yourself of any thoughts that you know where the market is going and find a way to limit your losses. This is the ultimate goal of option premium selling.
To accomplish this goal you must sell premium on both sides of the market and to limit risk you must buy further out options on both sides of the market for protection. By doing this you have now created a credit spread.
Creating a credit spread keeps you out of danger if the market suddenly runs up or down. Your total loss is limited to the difference in strike prices minus the premium received. In other words, if you sold a September 1600 call and bought the 1610 call for protection for a total credit of 250 ticks, your maximum loss would be 1000 ticks (1610 – 1600), less the original credit (250) for a maximum loss of 750 ticks. My objective is to have the September S&P close below 1600 by the time the option expires in September.
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