Posted in
Technical Analysis
By: Tom Gentile
on March 21st, 2023
The purpose of this education is to help ones powers of observation when studying a security’s chart.
When you have more than one security to choose from there are numerous things to analyze and use in deciding which one to pursue an options trade on.
One factor is assessing the Reward potential of the different underlying’s to see which one has a larger potential price move.
Regional Banks in Trouble
It’s not news that the financial sector is in a bit of turmoil right now. The regional banks have seen a couple of the banks go under and many more are at risk of doing the same.
As of late their have been efforts to rescue those that remain, and other larger banks are stepping up to help secure the money people had with those banks.
One thing that was announced today by Treasury Secretary Janet Yellen that brought a bit of a reprieve and may have been the biggest contributor to a decent pop higher in financials today was the government could backstop the deposits at more banks if there was risk of contagion.
Two Financial ETF’s to Analyze
Both charts Figures 1 and 2 are 100-day Japanese Candlestick charts on ETF’s from the Financial Sector.
XLF is the Financial Select Sector SPDR Fund (XLF)
KRE is the SPDR S&P Regional Banking ETF (KRE)
The primary difference between the two is XLF contains more of the larger banks in its portfolio where the KRE is mostly comprised of reginal banks.
Which Financial ETF to Consider for Options Trades?
It may seem a fairly simple observation that if a move from the area of support of both ETF’s to their old support level which may become a new resistance takes place there is one of the two that could bring a higher price move. There is a potential 2-point move for XLF and a potential 12-point move for KRE.
If one buys the same number of shares the math is pretty easy, but with options there are components like IV, Theta decay and Delta to factor in and calculate, but on a pure price move for the security basis even the options on a stock that could potentially move 12-points should bring more profits that options on a security that has a potential 2-point move.