On Sep. 20, the Financials Select Sector SPDR ETF
(NYSEARCA:XLF) traded eleven times its normal put options
volume. That was the highest daily volume in over a
year. After all was said and done over 900,000 puts were
traded compared to only 43,000 call options. For traders,
hundreds of millions of dollars in put protection were purchased on
XLF, but that's not all.
Among the volume surge, 192,000 of put contracts were from one
trader alone! It's assumed that this trader was just rolling
his/her protection out to December because they also closed
out their equivalent October positions. Typically, hedges are
initiated as risk control and suggest no directional
movement. However, 192,000 put options on XLF represent
$386MM and is a sure sign of a large institution or hedge fund
trade making a bet on potential downside in financial stocks.
Gold Experts are Wrong Again
Instead of ignoring the trade, we ask; Was the put
protection just a pure hedge or a bearish bet? We will never know,
but shareholders in the five largest holdings of XLF
- like Berkshire Hathaway (NYSE:BRK-B), Wells Fargo (
), JPMorgan (
), Bank of America (
), and Citigroup (
), should be on their toes. The heavy
put volume suggests the big money is betting
that more downside is ahead.
Something else also happened in August that has not occurred
since financial stocks kicked off their admirable rally from June
2012. Financials broke down from both their absolute uptrend
as well as their leadership role in the S&P 500
The chart below provided for subscribers on 8/16 in our
Profit Strategy Newsletter
commented on the potential breakdown of the financial sector.
A few days later Financials indeed broke down and officially
confirmed they were no longer the leaders of the market
This means portfolio managers may soon be pressured to shift out
of financial stocks and into other, better performing sectors,
driving financial shares down even further.
Also discussed in the September Newsletter, is if XLF and one
other very important sector both breakdown together, it will be
something that hasn't occurred since the rally from 2009 started
and will be a huge warning sign that the market (NYSEARCA:VTI) is
shifting out of its leaders and becoming more defensive.
Financials have already started their leadership decline, but until
joined by the other sector, the longer term uptrend should remain
For now, shorting financials (NYSEARCA:FAZ)
and staying long the broader market (NYSEARCA:SSO) is one
way to take advantage of a lagging financial sector. A pure
short on financials isn't likely to be the right move
just yet. However, the relative weakness of financials compared to
the broader market suggests that a shorting opportunity is
The ETF Profit Strategy Newsletter and Technical Forecast follow
the major ETF asset classes and sectors in search of high
probability profit opportunities like the one setting up in the
financials. We use fundamental, technical, sentiment
analysis, market history, and common sense to stay ahead of
major market trends.
Follow us on YouTube and Twitter