Reports surfaced this afternoon that 10 hedge funds were lessening exposure to the Frankfurt, Germany-based bank and as a result U.S. financial stocks declined.
Manhattan Venture Partners chief economist Max Wolff and Harvest Volatility Advisors managing director Dennis Davitt explained how investors should approach the financials trade in light of today's Deutsche Bank report.
"I don't think it deserves to bring the [financials] group down. I think the real issue here is that all financial institutions even the large ones, once they're in some trouble for a while, have these existential questions that pop up and there could be confidence runs on them that are much larger and more systemic than the problems they have," Wolff explained.
Wolff added that today's reaction by the market to the Deutsche Bank report exemplifies the concerns investors still have. However, he does see the move down today as an overreaction to the report.
Davitt, taking the other side of the argument, believes Deutsche Bank is an issue and investors must be ready to hedge themselves against it.
"I think volatility is inexpensive. The price of insuring that position is you can buy puts on Germany ETF, which is the EWG. So I'd probably take the other side on this, I would be concerned. The options are still pretty cheap; you should probably buy some options to hedge that position if you have concerns," he noted.