XLF – Bank Roll

by CC April 21, 2017 3:10 pm • Trade Updates

A couple of weeks ago we wrote about the bank stocks into their earnings season and offered a simple short-term protection strategy for those looking to protect gains into an uncertain potentially volatile period. The thought at the time was that this sector was one of the most vulnerable given high expectations for the president’s legislative agenda to be enacted in 2017 vs the reality of a flattening yield curve and waning of recent economic strength. Here it was, from April 7th:

For those who have gains in the sector, but fear this year’s underperformance is telling that the good news is in the stocks, and that for them to make new highs they will need at least a combination of legislative reform of some kind of broad deregulation. It might make sense to purchase near term protection in the XLF as Q2 guidance might reflect a tad of uncertainty.  So what’s the trade?

XLF (23.60) Buy the April 23.5 puts for .27

With XLF slightly lower at 23.23 as I write, this put is worth about what was paid. Because it’s in the money it needs to be either closed or rolled at this point.

For those looking to continue with the hedge here’s a roll out a month that keeps about the same premium at risk:

XLF (23.23)

sell to close the April 23.5 puts at .27


Buy to open the XLF May 23/21 put spread for .31
  • Buy 1 May 23 put for .38
  • Sell 1 May 21 put at .07


Breakeven on May expiration – 22.69

Gains of up to 1.69 between 22.69 and 21

Losses of up to .31 above 22.69

Rationale – Rolling protection out a month in case of a breakdown in financial stocks.