A Bearish Way To Trade The Financial Sector

On CNBC's Options Action, Dan Nathan shared with the viewers a bearish options strategy in Financial Select Sector SPDR Fund XLF.

He explained that the banking stocks aren't performing well recently. The S&P 500 is trading close to its highs, while the financial stocks fell around 5 percent in the last month, showing poor relative strength. Nathan thinks there is still a lot of uncertainty regarding the deregulation of the sector, which was one of the key reasons for a sharp rally since November.

Nathan added that 50 percent of Financial Select Sector SPDR Fund constituents are reporting earnings next week and he thinks that the CEOs might lower expectations for the next quarter.

He thinks it would be a good idea to consider a hedge or a speculative short in Financial Select Sector SPDR Fund, using options. He would buy the April 23.50 puts for $0.27. The trade breaks even at $23.23 or 1.23 percent below the current market price.