Some options traders are positioned to profit if a bank exchange traded fund’s low set earlier this month proves to be a short-term bottom for the troubled sector.
Call buyers in SPDR KBW Bank ETF (NYSEArca: KBE) were active Monday, said Paul Weisbruch at Street One Financial in a strategy note Tuesday. Call options are a bullish bet and give the buyer the right to purchase a security at a future date.
He said there has been “heavy call buying” in the bank ETF recently “as this trend has gone on for at least a month and a half as options players seem to want exposure to large-cap banking names including the likes of JP Morgan (NYSE: JPM), Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC), Citigroup (NYSE: C) and US Bancorp (NYSE: USB).”
Financial sector ETFs are down in 2011 on concerns over the economy and how new regulations will impact bank profits and capital levels. More recently, lenders’ exposure to Europe’s debt crisis has moved up the list of worries. [Financial ETFs Hit on Bank Exposure to Greek Debt Crisis]
SPDR KBW Bank ETF, along with the overall financial sector, have “been a major drag on the overall markets year to date,” Weisbruch wrote Tuesday, noting the bank ETF is down 9.6% while the SPDR S&P 500 ETF (NYSEArca: SPY) is up 1.6%.