Bank exchange traded funds have been hammered lately by weak economic data and reduced investor appetite for risk. Recent action suggests options traders are leaning toward further downside in bank ETFs that invest in big lenders such as JP Morgan (NYSE: JPM) and Citigroup (NYSE: C).

SPDR KBW Bank ETF (NYSEArca: KBE) lost 4% last week and is down nearly 10% over the past three months with investors worried over signals the economy is slowing and banks’ exposure to the European debt crisis.

Options traders have been buying puts on the bank ETF to profit from additional weakness.

“Recently, the options flows in this product have involved steady call buying, with most of the activity clustered around the $24-$25 price levels in the underlying ETF,” said Paul Weisbruch, vice president of ETF and options sales and trading at Street One Financial. “With a significant drop in KBE on Wednesday, these put buyers likely foresee continued downside.”

The bank ETF closed at $23.75 a share on Friday.


The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.