With stocks in a bear market and potentially more selling ahead, the Federal Reserve has cut interest rates to 0% and started a new $700 billion quantitative easing program. This could cause a substantial amount of volatility in the market, but especially in rate sensitive sectors like financials. In fact, a trader just bought a large straddle in the SPDR Sector Select - Financial ETF (XLF).
A straddle is when both the call and put at the same strike in the same expiration are purchased. It is a trade that can make money when there is a lot of volatility in the ETF. This particular trade seems to predict a huge move (up or down) in XLF before September.
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Jay Soloff is the Options Portfolio Manager at Investors Alley. He is the editor for Options Profit Engine, an investment advisory bringing you professional options trading strategies, with all the bells and whistles of Wall Street, but simplified so all you have to do is enter the trades with your broker.
