On CNBC's Options Action, Dan Nathan spoke about the financial stocks and he recommended a hedging strategy to lower the risk ahead of earnings reports for major banks.
Nathan said that JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc (NYSE: C), PNC Financial Services Group Inc (NYSE: PNC) and Wells Fargo & Co (NYSE: WFC) are going to report earnings on Friday. These banks are almost 30 percent of Financial Select Sector SPDR Fund (NYSE: XLF).
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The banking sector showed some relative strength this week, because 10-year bond yield increased. He added that the expectations about interest rate in December are still projected at 65 percent probability, but he doesn't find the banking sector very interesting for a trade. Nathan thinks that it would be a good idea to hedge against a possible decline in the space by purchasing the October weekly 19.50 put in Financial Select Sector SPDR Fund for $0.12. The premium is less than 1 percent of the underlying stock price and the hedge offers protection below $19.38.