Bank ETF KBE Tests Key Technical Level Ahead of FOMC Meeting

Call buying has been unusually popular on KBE

Sep 18, 2017 at 2:12 PM
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With the Fed's September meeting set to begin tomorrow, the SPDR S&P Bank ETF (KBE) is getting a lift, last seen up 1.6% at $42.57. As such, the shares are trading above two key technical levels located near $42.10. This price point sits near the exchange-traded fund's (ETF) 50-week moving average, as well as a 23.6% Fibonacci Retracement of its 2016 low to its 2017 high. And just below here is the $41 mark, which provided solid support for KBE on several occasions this year. 

bank etf

Options traders certainly appear hopeful the ETF will rise on the charts in the coming weeks and months. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 19.65 for KBE. Aside from showing nearly 20 calls have been bought to open for every put during the past two weeks, this ratio ranks just 8 percentage points from an annual high. 

During this time frame, the most popular contracts, based on increases in open interest, were the October 42 and December 44 calls. Data doesn't confirm notable buy- or sell-to-open activity, but for anyone buying the options, the goal is for the security to continue to rise through the respective expiration dates of Friday, Oct. 20, and Friday, Dec. 15. Looking back, the $44 level is site of the ETF's March bear gap, and the shares have struggled to overcome this area since. 

While call buying has been extremely popular on a relative basis, options volume for KBE has actually been quite tame on an absolute basis. For instance, call open interest currently sits at just 16,430 contracts, ranking 1 percentage point from an annual low. But the fund's 30-day at-the-money implied volatility of 17.7% ranks in the low 12 percentile of its annual range, so it seems like a good time to speculate with short-term contracts. 

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