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Options Traders Turn Bullish on Financial ETF


In a sector that has been dragged down by the general market recently, we saw optimistic looking flows on Friday. Financial Select Sector SPDR (XLF) call buyers surfaced and snapped up upside calls during the session, specifically the February 17 strikes, and the sector remains an impressive relative strength outperformer YTD, having rallied 19.62% versus the S&P 500 Index up 10.21% during the same time period.

Not long ago, heading into the U.S. elections, we witnessed huge call buyers in XLF that were apparently very bullish for the sector’s prospects, but they soon liquidated positions largely following the equity market’s swoon after the election

Thus, the options flows have turned bullish once more and it is important to note that the sector ETF continues to outperform the broad market here in 2012 (XLF +19.62% versus S&P 500 Index up 10.21% YTD).

XLF tends to be heavily concentrated in large cap money center banks, as top holdings are currently WFC (8.62%), BRK.B (8.25%), JPM (8.25%), C (5.71%), and BAC (5.23%).

This morning in the early going, XLF has opened on a “gap up,” rallying nearly 2% thus far after Friday’s impressive bounce.

Given the recent new-found optimism in the sector, we would expect ETFs of peripheral interest in Financials to also see heightened activity here including names like KBE (SPDR KBW Bank), KRE (SPDR KBW Regional Banking), VFH (Vanguard Financials), IYF (iShares DJ U.S. Financial Sector), IYG (iShares DJ U.S. Financial Services), FXO (First Trust Financial AlphaDEX), IXG (iShares S&P Global Financials), KBWB (PowerShares Bank Portfolio) amid a bevy of others.

Financial Select Sector SPDR

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.