The $1.8 Million Bet Against the Financial Select Sector SPDR ETF (XLF)

The Financial Select Sector SPDR ETF (XLF) is headed for its lowest close in more than two years

by Alex Eppstein

Published on Feb 11, 2016 at 2:49 PM

It's another dismal day for banking stocks, both at home and abroad. Case in point, the Financial Select Sector SPDR ETF (XLF) is down 3% at $19.68, and on track for its lowest close since October 2013. Amid this downtrend, it's become clear that option traders have bearish expectations for the shares.

From a high-level view, call open interest on XLF is just over 1.1 million, ranking in the low 11th annual percentile. For comparison's sake, put open interest is nearly double that amount, at just under 2.2 million.

In today's trading, puts outstrip calls 147,000 contracts to 50,000. Digging deeper, the most active strike is the near-the-money May 19 put, where more than 21,200 contracts have crossed. From the looks of it, one trader bought to open a block of 16,500 contracts for $1.07 apiece, resulting in a total net debit of almost $1.8 million (premium paid * number of contracts * 100 shares per contract). This initial layout represents the speculator's maximum potential loss, should XLF close north of $19 at May expiration.

Over the last month, traders have bought to open puts over calls by a healthy margin, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, XLF's 20-day put/call volume ratio registers at 1.38. Short-term speculators are also put-skewed, per the exchange-traded fund's (ETF) Schaeffer's put/call open interest ratio (SOIR) of 1.69, which ranks in the 87th percentile of its annual range.

It's no wonder the bears have come out in droves. The Financial Select Sector SPDR ETF (XLF) has a dismal track record, already falling more than 17% year-to-date, and threatening to close below its 50-month moving average for the first time since June 2012.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earning announcements before it's too late!


 
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


Look Who's Going Bankrupt Next in America
Porter Stansberry is making a concerning prediction.
First Week in April Provides More Coronavirus-Related Volatility
A slew of coronavirus-related news sent markets on another weekly roller coaster ride
Netflix Stock Heading into Historically Bullish Quarter
NFLX's 10-day moving average has stepped up as support lately
Look Who's Going Bankrupt Next in America
Porter Stansberry is making a concerning prediction.