Traders look for banks to extend gains
David Russell | email@example.com
optionMONSTER's Heat Seeker tracking system detected the purchase of more than 40,000 April 25 calls in the SPDR S&P 500 Bank fund against open interest of just 133 contracts. All the large blocks priced for $0.40 or $0.45.
The KBE fell 0.37 percent to $24.31 in morning trading and is up 25 percent in the last three months. The exchange-traded fund has been rallying as investors return to the financial sector. (See our recent study of U.S. lenders for more on how conditions have improved in the industry.)
The fund offers exposure to a wide range of banks including Popular, Regions Financial, and SunTrust. Its gains are roughly double that of the S&P 500 so far in 2012, but over the last year it has significantly underperformed.
Today's activity is noteworthy because the investor may be using long calls to avoid missing further upside in the banks. If the trader were to buy the fund's stock outright, for instance, he or she could be at risk of a significant pullback. Using options limits that risk while letting them save face with clients if KBE continues its breakneck rally. (See our Education section)
More than 40,000 contracts have traded in the fund so far today, about 8 times the average amount. Calls outnumber puts by more than 800 to 1.