The Worst ETF to Own Right Now

XLF is now trading south of its formerly supportive 50-day moving average

May 30, 2017 at 2:56 PM
facebook X logo linkedin


Signs are suggesting the stock market is entering a period of low volatility -- an ideal scenario for options buyers. While call buyers may want to drill down on this list of the 25 best stocks for June, put buyers may want to take a closer look at financial shares. Specifically, the Financial Select Sector SPDR Fund (XLF) is one of the worst-performing exchange-traded funds (ETFs) in the month of June, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. The average June XLF loss over the past 10 years is 3.4%, with the ETF positive just 20% of the time.

worst etfs to buy in june

XLF Has Struggled as the Trump Trade Loses Steam

XLF shares surged more than 46% from their June 27 post-Brexit low of $17.31 to their March 2 nine-year high of $25.30 -- a milestone that was inspired by a big rally in financial stocks on hopes the Trump administration would deregulate and cut taxes on the industry. However, the so-called Trump trade has lost steam in recent months.

And though XLF has repeatedly found a floor in the $23.00-$23.50 region -- home to its year-to-date breakeven mark and a 23.6% Fibonacci retracement of its recent rally -- the formerly supportive 50-day moving average appears to have switched roles to act as resistance. Today, XLF is trading down 0.7% at $23.44, as bank stocks struggle on Europe woes.

XLF Put Options Have Been Popular

XLF options traders have been growing increasingly skeptical in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the ETF's 10-day put/call volume ratio has jumped to 1.30 from 0.60 in the past two weeks. The current ratio ranks higher than 61% of all comparable readings taken in the past year, pointing to a slightly heavier-than-usual bearish bias among speculative players.

Echoing this put-heavy backdrop is XLF's front-month gamma-weighted Schaeffer's put/call open interest ratio of 2.39, which indicates near-the-money put open interest more than doubles call open interest among standard June options. The June 22 put is XLF's top open interest position, with 442,120 contracts outstanding.

XLF Short Sellers Have Been Jumping Ship

While this put-heavy strike has the potential to act as a magnet for XLF in the near term, short sellers have been abandoning their bearish positions of late -- meaning there's little in the way of sideline cash available to help fuel potential rallies. Short interest on XLF plunged nearly 16% in the two most recent reporting periods to 78 million shares, or 1.3 times the fund's average daily pace of trading.

XLF Options are Affordably Priced

Those wanting to bet on XLF's near-term trajectory -- one that includes an upcoming Fed meeting -- should strike while the iron's hot. The ETF's Schaeffer's Volatility Index (SVI) of 22% ranks lower than 88% of all comparable readings taken in the past year, meaning low volatility expectations are being priced into XLF's short-term options, a potential boon to premium buyers.
 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI