NEW YORK (TheStreet) -- Earnings season is under way, and TheStreet's Jill Malandrino and David Peltier are previewing the financial sector, and they reviewed a notable trade in the volatility index.
When stocks run ahead of earnings, profit-taking shouldn't come as a surprise, Peltier said, regardless of whether the report was good or bad.
Although the bulk of earnings season is several weeks away, the financial sector will be in the spotlight this week, Malandrino noted.
Regarding the banks, Peltier suggested that interest rates will really be the driver. With the yield on the 10-year Treasury note remaining elevated near 2.8% and higher, it should continue to drive profits.
Banks, especially regional banks, make money on the spread between short-term interest rates, which are near 0%, and long-term interest rates. The spread is the highest it's been in several years, Peltier said.
Ahead of the potential earnings chaos, Malandrino pointed out a sizable trade on the VIX. The trade involved 110,000 contracts of the February 16/20 call spread.
The position implies a bullish position on volatility, which generally coincides with downside in equities. The move is generally seen as defensive, possibly as a hedge for a long-based portfolio.
-- Written by Bret Kenwell in Petoskey, Mich.