If you are starting to formulate your strategic approach for 2017, a quick look at some of the broader market trends from 2016 may help you navigate toward the most optimal portfolio possible in the new year.

The big headlines in 2016 were of course "Brexit" and the US Presidential election, which seemed as if they both might finally push global equities lower. Instead, the market once again shrugged off even a hint of negativity and closed the year near all-time highs (in terms of the Dow Jones Industrial Average and the S&P 500).

Although markets undoubtedly surged last year, it wasn't necessarily in equal parts, as certain segments of the market were clear leaders (energy and financials), and others were laggards (health care).

In order to better understand the nuances of the equity markets in 2016, tastytrade broke out the performance of some well-known ETFs in a recent episode of Options Jive. Below are the ETFs included on the show and their associated market segments:

  • XLB: Materials

  • XLE: Energy

  • XLF: Financials

  • XLI: Industrials

  • XLK: Technology

  • XLP: Consumer Staples

  • XLU: Utilities

  • XLY: Consumer Discretionary

The graphic below shows the performance of each ETF listed above during 2016:

Returning 27% each over the course of the year, XLE (energy) and XLF (financials) were the clear leaders in 2016, while XLV (health care) was the only ETF of the eight that finished lower.

Energy obviously got a big boost from the OPEC deal that was discussed and ultimately finalized last year. Financials got back on track due to the recent rate hike by the US Federal Reserve, as well as guidance that several more are expected in 2017.

While US Presidential candidate Hillary Clinton was expected to target the healthcare industry under her administration, Donald Trump's victory doesn't seem to have allayed concerns that the industry may be a political target in 2017 - thus, the XLV's under-performance last year.

Likewise, one would think that Trump's rhetoric around an upcoming tax cut and infrastructure stimulus package could be the reason that XLI (industrials) and XLB (materials) weren't far behind XLE and XLF at the end of 2016.

Depending on your strategy and outlook, you may have already targeted one particular segment of the market as a good buy (or sell) in 2017. For example, there may be investors out there that think Trump's potential interference in the healthcare sector is overblown, and consequently, are expecting a big rebound in XLV.

In volatility terms, some may also be thinking that the XLE looks like a good short premium play in 2017 due to the OPEC deal - which could contribute to reduced volatility in oil prices over the near-to-medium term.

If you are considering volatility-driven ideas for 2017, a chart is included on the Options Jive that shows the recent (as of late December) Implied Volatility rankings of the eight ETFs - as pictured below:

It should be noted that as of late December, none of the IVRs in these eight ETFs ranked as "high" (above 50%). Given that the VIX has been trading between 11 and 12 for the last month or so (and has a historical average of closer to 19) it's certainly arguable that volatility may not be the best sale at this time (depending of course on your strategic approach and risk profile).

If you are interested in learning more about IV Rank and strategy selection for different market environments, we recommend reading this recent blog post: "Applying IV Rank to Strategy Selection."

Additionally, we recommend you frequently check the IV Ranks of the eight ETFs included in this post to filter for trading ideas, or simply to gauge current market sentiment on volatility by sector.

If you have any questions about IV Rank, or trading volatility in ETFs, we hope you'll reach out at support@tastytrade.com.

Thanks for reading!


Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.