Ahead of the third quarters earnings season, some investors are hedging bets on financial sector stocks and exchange traded funds, hinting at potential weakness in the area as banks underperformed through the near-zero interest rate environment.
For instance, one large trader placed a bearish bet against the Financial Select Sector SPDR (NYSEArca: XLF) on Thursday, acquiring 35,000 shares of XLF October 30 22-strike put options for 51 cents each, reports Stephanie Yan for CNBC.
The trade was a $1.8 millin play that the XLF would fall below $21.49 by October 30. XLF was up 1.1% Friday, trading around $22.7.
Dan Nathan, co-founder and editor of RiskReversal, pointed out that an increase in bearish bets against the financials sector through the options market suggests that traders are becoming more defensive going into the third-quarter earnings season.
“About 50% of the weight of the [financials sector ETF]is going to report between now and October 30th. So it could be a protection trade,” Nathan told CNBC. “[Traders are] trying to get protection at this big support level into earnings.”
The financial sector was trading near its August 24 close on Thursday.