Caution dominates trades in bank fund


One big investor is worried about a selloff in the banks.

optionMONSTER's Depth Charge tracking program detected the purchase of 10,000 April 26 puts on the SPDR S&P 500 Regional Banking exchange-traded fund for $0.94. Equal-sized blocks were sold at the same time in the March 26 puts for $0.44 and the April 23 puts for $0.21.

The activity in April resulted from a new put spread being opened, which will provide $3 of downside protection on the KRE between $26 and $23. Volume in March was below open interest, indicating that the investor previously owned those contracts as protection and is now rolling the position forward by one month.

He or she is probably using the puts to hedge a long position in the fund or in other stocks that track it. Yesterday's transaction resulted in an incremental debit of just $0.29. (See our Education section)

The KRE rose 1.73 percent to $27.40 yesterday. It rallied from $19 to more than $27 between October and mid-February but has been pulling back since then. Its biggest holdings include lenders such as Synovus Financial, Popular, and Regions Financial.

Overall option volume in the fund was almost 5 times greater than average yesterday, with puts outnumbering calls by 84 to 1.

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