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The collapse of Silicon Valley Bank (SIVB) last week sent markets into a bit of a tailspin with the S&P 500 dropping 5% in a week, the Financial Select Sector SPDR ETF (NYSEARCA:
KRE, XLF: How To Play The Bank Runs Drama
Summary
- The recent downward volatility of bank shares is largely an overreaction to isolated events. Bank insiders seem to agree as they are buying a lot of shares.
- The outlook for banks is generally good given rising rates. Dividends are safe in the foreseeable future, which gives a good base for valuation.
- The government will probably backstop a collapse in the financial sector, so there is a put of sorts here.
- The market is clearly spooked as implied volatility for diversified bank ETFs like the KRE and XLF are at year-long highs and have seriously backwardated term structures.
- Selling cash-secured or naked puts on ETFs is my preferred way to play this, but buying shares is highly advisable too.
Cogent investment views on digital assets, macro, and derivatives. BTC Maxi. My investment philosophy centers around deep fundamentals, impactful narratives, and Austrian economics. Time horizon is the primary dividing factor for investment research. Long-horizon research will focus on digital assets, macro, and general value opportunities. Emphasis is placed on a global, long-run macro view as the basis for these investment considerations. Short-horizon research will focus on options and volatility for income generation and hedging.Personally, I do business development and communications for a decentralized finance (DeFi) startup that brings capital efficient spot and derivatives trading to crypto. I have a few years of investing experience, a strong finance and economics background, and working proficiency in Python programming.
Analyst’s Disclosure:I/we have a beneficial long position in the shares of KRE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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