KRE has not performed well lately, trading as low as $51.08 on an intraday basis on Wednesday of this week before bouncing to some degree to present levels just shy of $53 (the strike, not coincidentally of these September calls). It is very possible that value investors have entered the fray here, and are speculating on a potential recovery in the space between now and September options expiration.
Financial stocks in general have not performed well since peaking in early March of this year, as disappointing earnings reports have hampered Regional and Money Center banks alike, as well as assorted Brokerage stocks. This comes after massive out-performance in the greater Financial and Banking segment which occurred basically from Trump’s election last November through the beginning of March, before the come down occurred in the sector.
KRE is an interesting way to play potential upside in beaten down financials, which is likely what the call buyers are looking at here, since that the fund is by far the largest “Regional Bank” focused ETF in the U.S. marketplace at north of $3 billion in AUM.
The second largest fund in the space by comparison only has $700 million in assets under management and that is IAT (iShares U.S. Regional Banks, Expense Ratio 0.44%). IAT actually has seen decent inflows year-to-date in the context of its overall AUM level, taking in more than $122 million during this time frame, while KRE has seen small notional outflows of about $15 million.
The appetite for upside calls in KRE also has us closely watching lesser known, but potentially useful “Levered Bull” funds in this space, specifically DPST (Direxion Daily Regional Banks Bull 3X, Expense Ratio 1.04%, $26 million in AUM) and KRU (ProShares Ultra S&P Regional Banking, Expense Ratio 0.95%, $12 million in AUM), which may see some uptick in interest in this environment.
Conversely, there exist two “Levered Bear” funds in the Regional Banking space that are much smaller than the “Bull” funds but worth talking about here given the sudden interest in KRE calls, and these are WDRW (Direxion Daily Regional Banks Bear 3X, Expense Ratio 1.04%), $1.9 million in AUM and KRS (ProShares Short S&P Regional Banking, Expense Ratio 0.95%, $1.7 million in AUM).
The SPDR KBW Regional Banking ETF (NYSE:KRE) was trading at $52.67 per share on Friday afternoon, down $0.08 (-0.15%). Year-to-date, KRE has declined -5.22%, versus a 9.19% rise in the benchmark S&P 500 index during the same period.
Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.
Paul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.
He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.