Financial Stocks Could Get Whacked


Manage episode 160366280 series 1063725
על ידי Joshua Belanger התגלה על ידי Player FM והקהילה שלנו - זכויות היוצרים שמורות למפרסם, לא ל-Player FM, והשמע מוזרם ישירות מהשרתים שלכם. הירשמו כדי לעקוב אחר עדכונים ב-Player FM, או הדביקו את כתובת העדכונים באפליקציות פודקאסט אחרות.
Earlier today I noticed a large option trade hit the tape in the Financial ETF (XLF). The trade was a block of 18,430 August $24 puts bought to open for 20 cents. The total volume was 24,090 contracts at that strike vs. an open interest of 6,363 contracts. Now, I don't pay too much attention to large contracts traded in ETF's because there's not much edge because ETF's are used for a lot of hedging. However, I wanted to point out a few reasons why this could at least be a short term directional trade. The XLF was down .79% compared to the SPX .29% today. A few names in that ETF were down even more like Bank of America closing down 2.50%. The XLF weekly options that expire on Friday are in backwardation. What that means is that the market is pricing in elevated short-term risk, which I'm not sure why. The current implied volatility percentile is on the low end of the range at 7%. Which means selling options here is not advantageous. That doesn't mean buying option premium is a layup either because you have to pick direction and it volatility could continue to contract. When you buy premium, you need volatility to go in your favor as well. In this scenario if prices of the XLF dropped, volatility would go increase. If you want to follow the bearish trade in the financials and also think the buyers of the puts are onto something, then you would want to consider buying a put spread. The September 9 24.5/23 put spread for a $.61 provides a 1:1 trade setup with a 30% probability of hitting the 50% profit target of 90 cents in the next 30 days. If you like following this kind of activity in the options market, but want help creating ideas, I'm going to be opening up a service called the Hot Money Options Trading Alerts. The service is going to provide ideas to trade following unusual options activity just like this delivered into your inbox. Keep an eye out for early bird offer coming in the next few days. In the mean time, you can pick up the Hot Money Options Trading Report which shows you exactly how I found that trade and others. Full disclosure, I already have a debit put spread in Bank of America that I put on a few weeks ago that hasn't gone in my favor. To your wealth, freedom and options! Joshua Belanger

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