With stocks in a bear market and potentially more selling ahead, the Fed 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 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 (movement) in the stock/ETF. This particular trade seems to predict a huge move (up or down) in XLF before September.