Just as we saw in the August collapse, US financial stocks appear to be facing the harsh reality that other markets already recognize. While US financial credit markets have been anything but exuberant for weeks, equity options markets have now turned their bullish backs on the banks as Bloomberg reports [5] the ratio of bearish to bullish options on the S&P Financials ETF has climbed to the highest level in a year this week, reflects rising demand for protection against losses as NIM hopes collapse and Fed "error" probabilities increase.
Bank stocks are once again catching down to financial credit markets...
[6]
And now, as Bloomberg reports, [5] while the start of Federal Reserve tightening was supposed to boost stocks in financial firms that have seen interest income shrivel, if hedging activity is any indication, investors are getting antsy about that trade.
The ratio of bearish to bullish options on an exchange-traded fund tracking financial companies in the Standard & Poor’s 500 Index has climbed to the highest level in a year this week, according to data compiled by Bloomberg. That reflects rising demand for protection against losses in an ETF that absorbed $1.7 billion over the last three months of 2015, the most among nine industries.
Traders own 178 bearish contracts on the SPDR Financial Select Sector ETF for every 100 bullish ones, according to data compiled by Bloomberg as of Jan. 4. The measure rose to 181 on Dec. 30, the highest put-call ratio since Nov. 24, 2014. On average in 2015, the ratio was 118-to-100.
"Everyone’s saying the financials are going to get better because interest rates are rising but it’s not going to happen overnight,” Michael Block, chief strategist at Rhino Trading Partners LLC in New York, said by phone. “People should be worried about earnings, about how banks are going to make money. They need higher interest rates and they need more trading opportunities.”
But, but, but...everyone said Financials were a no-brainer?!
Charts: Bloomberg
