Markets are struggling to find direction in the new year and the hotter-than-expected jobs report Friday caused even more confusion. The nonfarm payroll data spiked U.S. Treasury yields and created selling pressure across all three major U.S. equity indices. Technology stocks continue to see some profit taking and I want to create income on any additional downside movement as this high beta sector looks to roll over technically. Using the Technology Select SPDR (XLK) , I want to capture the increase in volatility and collect elevated option premium. With the robust jobs data, Fed forecasts now firmly push a possible rate cut into the back half of 2025. Tech stocks ended 2024 with stellar performance after a phenomenal 2023. It makes sense that the biggest tech names, aka Mag 7, will see some position trimming. The current market cap weighting of the Mag 7 sits at historic highs and a revaluation seems plausible as more and more global investors have the same exposure. That all being said, I do not see any panic as tech companies continue to produce massive profits fueling the AI theme. Short-term we are seeing a violation in XLK of its 50-day moving average which I believe will create some opportunity as investors historically reposition around these significant technical levels. I see support at $221 on the below chart which represents the 200 day moving average for XLK. The trade I’m selling a put spread on the tech fund. Sold the XLK 2/07/2025 $225 Put for $3.75 Bought the XLK 2/07/2025 $220 put for $2.25 This credit spread allows an investor to collect $1.50 or $150 per one lot spread This spread was executed when XLK was roughly trading $230 If the technology sector’s volatility calms down and the much-loved sector once again attracts buyers, XLK should stay above $225 before expiration. In this case, an investor will collect the entire amount of premium collected. In the event technology sees additional sellers between now and then, an investor risks the $5 wide spread minus the premium collected, risk is defined at $3.50 per spread. DISCLOSURES: (Sold spread, long XLK) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
