Dan Nathan's Financial Select Sector SPDR Fund Hedge

Dan Nathan said on CNBC's Options Action that the best way to protect gains in individual financial stocks is by purchasing put options in Financial Select Sector SPDR Fund XLF.

He explained that the ETF is useful for hedging individual stocks because big banks are the largest components of the ETF. It also has cheaper options than individual stocks and it's more liquid. The ETF can be used to target specific events.

Nathan believes there is a technical resistance for Financial Select Sector SPDR Fund at $25 and he wants to buy the April 23 put for $0.75 to protect a long exposure in the sector. The trade breaks even at $22.25 or 5.64 percent below the current market price.