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
Updated on Jun 24, 2020 at 10:16 AM

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.

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