Financials flows have been decidedly bearish in the options markets for the past week or so, and with today’s gap down in XLF (SPDR Financials Select Sector, Expense Ratio0.18%) below $20 a share, many of these positions are now firmly in the money.
XLF has been a notable out-performer YTD, but relative strength has been waning significantly in the past month or so with top components BRK.B, WFC, and JPM all taking it on the chin lately (today included).
Indeed, financial names have been staggering as of late, with a 2% gap down today in XLF, driven largely by weakness in large Money Center banks like JPM (8.33% weighting in XLF), WFC (8.48% weighting), and C (6.09% weighting) for instance.
XLF is heavily dominated by Financial Services names (86.27% of the portfolio) while Real Estate names make up 12.88% of the underlying index and has a decidedly mega to large cap slant (48.45% mega cap, 41/60% large cap).
We have mentioned the presence of fall put buyers in the past week or so via our options recaps and the price pressure in the space in recent days may be cause for alarm among those long holders of the ETF whom have been riding its relative out-performance to the broad market year to date.
Leveraged Inverse funds like FAZ (Direxion Daily Financial Bear 3X Shares, Expense Ratio 0.95%) and SKF (ProShares UltraShort Financials, Expense Ratio 0.95%) will likely catch a bid here as they are trading near multi-month highs and on the verge of a technical breakout.