The SPDR S&P Regional Bank ETF's (KRE) 52-week high is $41.97. On Monday, on a basically down day for the major averages, KRE managed to tick up in price to within $0.20 of quietly making a new 52-week high. Given the fact that interest rates are creeping up, regional banks could soon find themselves supported both by fund managers and the press. After all, nothing makes for better business news stories than a sector that's fighting its way toward greater profits, and then earning some respect in the investing world for its efforts.
Regional banks (and bigger ones) like rising interest rates, as a higher rate environment makes for higher bank profits. Keep in mind that the regional banks have been painted with the same ugly brush as the major banks have during this long period of the financial press reporting on the plight of the overall industry. All the while, they have continued to quietly improve both their balance sheets and income statements. Yet any bad news for the banking sector is more for the press to feast upon, and bad news has a wicked tendency to hurt a bullishly-biased trade.
KRE trades at a PE of 15X, while yielding 1.7% as per its annual dividend's rate of return. Banks have a nice habit of raising dividends as their balance sheets and income statements improve. That in turn tends to increase the stock prices of banks.
Technically, KRE has a bullishly rising one-year stochastic that is confirmed by a bullishly rising RSI. And KRE is less than a point from breaking out of resistance levels ($42) that have not been penetrated since 2007.
Source: Yahoo Finance
The trade tactic I prefer now for KRE is the bullishly-biased, at-the-money, long call shooter. The expiry is regular-way June, which is less than six weeks away.
This trade is loaded with risk due to the short amount of time for KRE to break out far enough to capture a targeted profit level relative to the risk taken. Thus, if you are in any doubt, avoid this trade!
Trade: Buy to open KRE Jun 42 calls for $0.75.
The suggested target to close for a gain is a bid of $1.25 and the suggested target to stop out is a bid of $0.25.
AS ALWAYS, this is a guideline and you should always stick to your trading plan and what's best for your risk/reward tolerance.
Skip Raschke writes regularly for Options Profits. You can get his trades first and interact with him there with a free trial.
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