Mike Khouw's XLF Trade

On CNBC's "Options Action," Mike Khouw suggested a bullish options strategy in Financial Select Sector SPDR Fund XLF. He thinks the financials might outperform the market if we continue to see weakness in the tech space.

Even though there is a good valuation story and the momentum is starting to turn in favor of the financials, there also might be some grind, said Khouw. He thinks so because the market just took a big hit, there is a difference of opinions when it comes to the financials and the options premiums are a bit elevated.

Khouw wants to make a bullish bet, but he wants to use options to mitigate the risk. He wants to sell the October $28 call for 20 cents and buy the November $26 call for $1.20. The total cost of the structure is a dollar or around 4% of the underlying stock price.