Bank stocks have had a terrible month so far
Bank stocks have taken a bruising during the broader equities market's latest leg lower, with the Financial Select Sector SPDR Fund (XLF) down 11% since an early December rejection at the $27.50 level -- a familiar layer of resistance following the fund's mid-October bear gap, and home to its 80- and 120-day moving averages. In fact, the shares bottomed at a 15-month low of $24.30 on Dec. 10.

Today, XLF shares have erased an earlier lead to trade down 0.9% at $24.43, and put volume is accelerated. With less than an hour left in today's trading, around 144,000 puts have changed hands, compared to 73,000 calls. Trade-Alert highlights a potential risk-reversal, or synthetic long, strategy, using XLF's January 2019 22-strike puts and 25-strike calls, which would imply expected upside of more than 2% by the close on Friday, Jan. 18.
More broadly speaking, speculative players have been initiating long puts relative to calls at a faster-than-usual pace in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the fund's 10-day put/call volume ratio of 1.90 ranks in the 83rd annual percentile.
Whichever way speculators are playing XLF, short-term options are pricing in elevated volatility expectations ahead of next week's Fed meeting, where the central bank is expected to issue its fourth and final rate hike of 2018. The fund's 30-day at-the-money implied volatility was last seen at 23.9%, registering in the 93rd annual percentile.