One Deep-Pocketed Bet on This Bank ETF

XLF is on track for its worst week in over 10 years

by Patrick Martin

Published on Mar 13, 2020 at 3:00 PM

Michael Burry, made famous for his shorting of the housing market and his portrayal in the aptly titled movie The Big Short, made waves in August for his stance on passive investing. Railing against exchange-traded funds (ETFs), he warned that a possible bubble could exist and could be triggered by a global catalyst. Well, that's happening right now with the coronavirus. So, was Dr. Burry on to something? Below, we assess the performance of one ETF, the Financial Select Sector SPDR Fund (XLF), and unpack one trader's deep-pocket put spread trade on the finance ETF.

At last check, XLF is up 4.1% to trade at $21.15. Despite the bounce today, the ETF is heading toward its worst week in over 10 years. Since a Feb. 12 record high of $31.38, XLF has shed over 32%. And as of Wednesday, none of the 40 bank stocks in the ETF were trading above their 80-day moving average, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.

Daily Stock Chart XLF

In the options pits from a high-level view, total option open interest on XLF is just over 4.3 million, ranking in the 100th annual percentile. For comparison's sake, put open interest is nearly double the amount of call open interest -- just under 3 million to 1.4 million. 

So let's get into that trade from yesterday. With XLF off over 10% to trade at a three-year low on Thursday, one trader sold 171,522 April 23 and 26 put spreads for $2.22 and bought to open the same size in the weekly 3/31 17- and 20-strike put spread for 97 cents. The net credit of $1.25 works out to $21.4 million in the trade, so it looks as though the trader is rolling down the April puts to a lower strike. According to Trade-Alert, the April spread was initially bought in late February when XLF was trading near $28.76. This type of position adjustment allows an options player to further leverage a winning position.


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