Carter Worth and Mike Khouw shared with the viewers of CNBC's "Options Action" their trade on SPDR S&P Regional Banking ETF KRE.
Worth is concerned the regional banks, banks in general and brokers and dealers are ahead of themselves. The recent performance of KRE is a bearish sign for Worth as it spiked to its former high and then backed away aggressively. The ETF is also trading at the upper band of its uptrend channel and Worth expects it to drop to the lower band of the channel.
In the last six months, KRE gained around 70%, while small caps are up 40% and the S&P 500 jumped only 10%, said Worth. He would take profits or sell short the ETF because it is priced to perfection.
Khouw suggested an options strategy that is more a "pause" trade than an outright bearish trade. He wants to sell the April $65/$70 call spread in KRE for $1.90. The trade breaks even at $66.90 and if the stock jumps to $70 or higher at the April expiration, it can maximally lose $3.10.
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