Financials are under pressure and could test key levels this week. Wells Fargo (WFC) shares are trading down $1.56 to $25.11 and weighing on the sector after the bank reported quarterly earnings of $0.72 per share on $19.63 billion in revenues. Analysts were expecting $0.73 on $20.34 billion. Citigroup (C) also slipped on earnings in pre-market action, but was recently up $0.60 to $29.
Still, Financial Select Sector SPDR (XLF), which tracks all of the financial names from the S&P 500, is down $0.10 to $12.50. Shares performed well since October 3 and are up 10.5% over the past two weeks. Now, XLF is facing an important support level at $12.50, which coincides with a 50-day moving average. Beyond that, the next area of support is around the August low or $12.
One player in the options market seems concerned that the $12 level won't hold for the XLF and initiated a massive November 10 - 12 put spread on the exchange-traded fund Friday. Shares were at $12.65 and 108,000 November 12 puts were bought for $0.44 while 108,000 November 10 puts sold at $0.08. The spread, for a $0.36 net debit, has a downside breakeven at $11.64 (-6.9%) at the expiration and a potential $1.64 profit if shares fall to $10 (-20%).
I already have a bearish position open in the XLF and highlighted the issues banks are facing in an October 6th Hot Topic. Given the bleak outlook, I would feel comfortable adding to that December 13 - 14 call spread, which was sold for a $0.27 credit. Focus next turns to Goldman Sachs (GS) and Bank of America (BAC). Both release earnings tomorrow morning. If results disappoint, watch XLF and that key $12.00- 12.50 area. It has implications for, not just banks and brokers, but the market as a whole.
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits.
On Wednesday, October 19 at 6:00 p.m. EDT, TheStreet's Options Profits is hosting a webinar featuring Fred Ruffy of WhatsTrading.com. Join Fred as he outlines how to look at the "big picture", drill down into the sectors and ultimately find the individual options trade. Utilizing specific trade examples and case studies, Fred will show you how to select simple and advanced options plays. The back half of the webinar will include an interactive, exciting Q&A session.
Please email: firstname.lastname@example.org to secure a slot for the webinar as space is limited and for the link to the presentation. IF you have already RSVPd, there is NO NEED to send another reposnce. A spot has been reserved.
Click here for a 14-day free trial to Options Profits
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV