Is Financial Sector on Verge of Tumbling?
A deep-pocketed investor has placed a $1.1 billion hedge with FLEX options that will pay off if financials fall 10%.
A major investor with deep pockets thinks the financial sector could tumble 10%.
Over the past several days, he amassed a large financial sector hedge. He tried avoiding attention by trading within an obscure part of the options market. But the trading volume was so large that it appeared on screens widely used on Wall Street to monitor trading volume.With the Select Sector SPDR-Financial exchange traded fund (ticker: XLF), a proxy for financial stocks, trading around $22.90, the investor bought 561,000 Select Sector SPDR-Financial January $20.63 puts that expire Jan. 14. These Flexible Exchange, or FLEX options, expire three days before the standard January expiration cycle.FLEX options are bespoke options contracts that let investors select the expiration and strike price. Those terms are standardized in the listed options market. Sometimes, investors change contract specifications to more closely align options contracts with anticipated events or the price of their securities. This type of trading usually occurs in the private over-the-counter market that banks operate for their best clients.On Friday, the investor bought 150,000 puts. On Monday, the position was increased by 350,000 contracts. On Tuesday, another 61,000 contracts traded.In total, the hedge represents about $1.1 billion in value of the underlying ETF, according to Henry Schwartz of Trade Alert, an options-volume analysis firm. The investor paid 35 cents for each contract....MORE
