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San Jose RS Institute: Register to join us in person for a 3-hour educational symposium on relative strength investing. This event is for financial advisors and will offer 3 hours of CFP/CIMA credit.

When: September 18th, 2025, 9 AM PST - 12 PM PST

Where: San Jose Marriott, 301 South Market Street, San Jose, CA 95113

Who: Speakers include...

John Lewis, CMT, Senior Portfolio Manager; Andy Hyer, CFP, CIMA, CMT, Client Portfolio Manager; Ian Saunders, Senior Research Analyst

Cost: Free! Lunch will also be provided.

Registration is limited to the first 75 advisors, so be sure to act fast!

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Relative strength is useful in identifying which areas of the market hold long-term strength, but equally important is its ability to identify areas to avoid or underweight. While most areas of the market are firmly in the green this year, the same cannot be said for healthcare. The Health Care Select Sector SPDR Fund (XLV) is down 0.05% this year while no other major sector SPDR fund is negative on the year. Movement lower resulted in the group moving to last place within DALI in July, sitting 25 signals behind the next closest sector entering August. Recently, things within the sector have shown initial signs of change. Healthcare is the best performing sector so far in August, with XLV gaining 5.4% to flip its trend back to positive. Within Asset Class Group Scores, the group has risen 0.5 points this month and has more than doubled its score since its low of 1.07 in May. Recent movement begs the question, what has been driving the sector’s movement and will it last?

One of the biggest drivers of healthcare underperformance this year has been the deterioration of healthcare providers, most notably from UnitedHealth (UNH), Elevance Health Inc. (ELV), and Molina Healthcare (MOH) all hitting multi-year lows. Many of these companies lowered guidance and fell in July due to reduced funding for the Affordable Care Act (ACA), Medicare, and Medicaid. The iShares U.S. Healthcare Providers ETF (IHF), which includes the three previously listed stocks, was not immune to its share of technical deterioration. IHF slid -14% and fell to a fund score low of 0.06 in July. However, the fund was previously oversold by more than 110% entering August, partially explaining why the group and broader sector rebounded in recent weeks. Although, IHF still holds an extremely weak fund score of 0.25 while XLV also remains unacceptable with a score of 1.52 given their long-term weakness.

Overall, healthcare continues to look weak across the long-term, but it could be an area to monitor should the recent improvement continue. That said, acceptable areas within healthcare do exist for those seeking exposure. Pharmaceutical companies have outperformed the broader sector, as the iShares U.S. Pharmaceuticals ETF (IHE) is up 6.8% YTD, but its score of 2.72 is still below the acceptable 3.0 threshold. The group has been dragged down by the largest names due to struggles from many weight loss drugs, with 1 for 5'ers Eli Lily (LLY) and Novo Nordisk (NVO) down 8% and 37%, respectively. One drug stock to look toward is Cencora Inc. (COR), which has been a 5 for 5’er since 2023 and reversed to a buy signal earlier this month. Long exposure can be considered here while strong support is between $280 and $268.

Meanwhile, Biotechnology is another solid subgroup of healthcare, with the iShares Biotechnology ETF (IBB) up 4.7% YTD after the almost 29% rally off its April low point. IBB has an acceptable fund score of 3.58, which is 1.26 points higher than the average healthcare fund. One biomedical stock to look towards is Gilead Sciences, Inc. (GILD), which is a 4 for 5’er that completed a double top earlier this month at $118, marking its fourth consecutive buy signal as it nears new all-time highs. The stock offers an solid yield of 2.6% while support can be seen from $110 and $106, in addition to the bullish support line at $102.

Over the few trading sessions, many of the best performing stocks of 2025 have had significant pullbacks – through Wednesday’s close NVIDIA (NVDA) was down more than 5% from the high it reached earlier this month, while Meta (META) was down more than 7% from its high intraday on Thursday. Other high-flying names have fallen even further, like Palantir (PLTR), which is down has experienced a peak-to-trough decline of more than 20%. The sell-off has left investors with a bit of a conundrum – this is the most significant pullback we’ve seen in most of these names since April, offering a potentially attractive buying opportunity. On the other hand, the S&P 500 is only down about 1.5% from its all-time high and even with this pullback, NVDA is still up roughly 30% year-to-date, while PLTR is up more than 100%.  

Investors who are looking to add exposure on this pullback, but who are worried about the potential for additional downside may want to consider the opportunities of an asymmetric risk-reward position using options.

Asymmetric risk-reward in this context means that long-dated call options on these stocks are expensive relative to put options at the same expiration. This allows us to buy the stock, purchase a put for downside protection, and finance the put premium by selling a call that is further out of the money, providing us with upside (from the current price of the stock to the strike of the call option) that is in some cases more than five times the potential downside (from the current price of the underlying stock to the strike of the put option).

You may be wondering “Why do I need to use options?” I could just buy the stock and set a stop at the put strike and not have my upside capped by selling a call.” That is certainly an option. However, what the put option affords you is the freedom to let the stock decline below the put strike (and hopefully recover) without worrying about having to realize that loss. Should the stock experience a large decline, it also affords you the opportunity to own it at a significant discount to its current price. For example, if you entered into the first NVDA position on our list and the stock subsequently declined to $150, you could sell your put, collect $20 (assuming a sale price at the intrinsic value of the option - $170 minus $150) and own the stock with a cost basis of around $155.

Earlier this year, we published an article titled “Buffered ETFs… The Good, The Bad, and The Ugly” which highlighted some of the issues with buffered ETFs, most notably the fees associated with these products and their tendency to underperform the market. Using asymmetric options positions, you can construct a “buffered” portfolio with defined upside and downside. But, by using asymmetric options you avoid the fees of buffered ETFs and, while most buffered ETFs have a reward-to-risk ratio around 1:1, asymmetric option plays often offer R-Rs of 2:1 or better.

All the stocks on our list have technical attribute ratings of four or higher, and most offer a risk-to-reward ratios of two or higher with at least 10% potential upside.

These are just a few examples of stocks with options that have asymmetric payoffs, there are other names out there that offer similar risk-to-reward profiles, they can typically be found in stocks that attract a lot of speculative option investment, like PLTR & NVDA. Also, these are not the only expirations and strikes at which these stocks may offer asymmetric opportunities. If you conclude the downside risk is too great, you may be able to find a better fit by raising the put strike and lowering the call strike. As a general rule though, as the expirations of the options get closer to the present and the strikes get closer to being in the money, the reward-to-risk profile tends to deteriorate.

The type of asymmetric opportunities we've highlighted here are not ideal for filling out an entire equity allocation. There simply aren't that many of them out there and, due to the capped upside, they are likely to underperform in a strong bull market. However, they can be quite useful for taking targeted positions. As mentioned above, they can also be used to create a “buffered” portfolio instead of relying on off-the-shelf products that have less attractive risk-to-reward ratios. They are also a way that you can differentiate yourself as they add a level of sophistication to your client's portfolio that many of your competitors don't offer. 

Daily Option Ideas for August 21, 2025