Interesting Action in a Big Financial ETF

The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial sector exchange traded fund, is widely viewed as the bellwether financial services ETF so its decline of nearly 3% last week is noteworthy.

Although flows data suggest investors have been embracing XLF in significant fashion since the start of the fourth quarter, other data points indicate some traders are preparing for more declines in the marquee financial services ETF.

Some strategists also argue that the financial sector may be a good area to look at this time around, given the potential for growth in a rising rate environment, along with potential tax and regulatory changes under the Donald Trump administration.

“Taking a quick step back, roughly 77,000 XLF put options traded Thursday — 1.1 times the average daily volume — compared to 71,000 call options, fewer than what’s typically seen exchanged in a session. The weekly 11/10 26-strike put was most active due to a 19,417-contract block that was bought to open for an initial cash outlay of $310,672 (number of contracts * $0.16 premium paid * 100 shares per contract),” reports Schaeffer’s Investment Research.

Deregulation could also help the financial sector improve their margins. President Donald Trump’s administration has shown its eagerness in cutting back the red tape and remove some of the post-financial crisis regulations that has stifled the industry.