Downside trades in regional bank fund

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Regional lenders have outperformed larger banks this year, but one big investor is positioning for downside in the KRE exchange-traded fund.

optionMONSTER's Depth Charge tracking system detected the purchase of 15,000 September 23 puts on the SPDR KBW Regional Banking (KRE) exchange-traded fund for $0.26 and $0.27. A block of 7,500 September 26 calls was sold at the same time for $0.56. Volume was above open interest in both strikes.

The trade resulted in a small credit and will be highly leveraged to a big drop because twice as many puts were bought as calls were sold. The investor may be attempting to hedge a long position in the fund or the companies in it, though this could also simply be a large downside bet. If this was a naked call sale, it stands to lose money if KRE pushes much above $26 before September expiration.

The KRE is trading at $25.43, down 0.51 percent today and nearly 4 percent so far this year. The fund owns relatively obscure companies such as East West Bancorp and Cathay General Bancorp.

In contrast, the broader SPRD Bank fund (KBE), whose largest holdings include JP Morgan, Bank of America, and Citigroup, has lost more than 8 percent of its value in the same period.

Total option volume in the KRE is more than 7 times greater than average so far today, according to the Depth Charge.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: KRE

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