Option Trading Idea: KBW Regional Bank ETF (KRE) Bear Call Spread

The KBW Regional Bank ETF (KRE) has been in a channel downtrend since its August closing high of $23.28. Investors may be watching the rise of mid-size and small bank failures due to the commercial real estate fallout and taking profits in these names since the KRE bottomed above $17 in July. This bear call spread on the ETF offers the opportunity to earn a 28% return on risk to January expiration if sold for $0.55. Implied volatility in January options for this ETF is about 35-40%, while actual volatility of the KRE is hovering above 30%.

KRE Credit Spread Trade Details:

KRE is currently trading at $21.32.

Credit Spread/Bear Call Spread–

• Sell the January 22.5 call (out-of-the-money) for 65 cents per contract.
• Buy the January 25 call (out-of-the-money) for 10 cents per contract.
• Net credit of 55 cents per spread

Profit/Loss Details:

Maximum Profit: 55 cents (the credit collected). This excludes commissions, though exit commissions will not be required if both calls expire worthless.

Maximum Risk: $1.95 (the difference between strikes minus the credit collected). Reward on risk is approximately 28%.

Breakeven: $23.05 (the strike of the lower call plus the premium collected).

Remember, trading Ideas are generated by the ONN Idea Generating Platform as a starting point for people to begin their own research. Trading ideas are not intended as trading or investment advice or recommendations that any particular security or strategy may be suitable for any specific person. You are solely responsible foryour investment decisions, but we hope that some of these ideas will give you a starting point as you look for strategies to employ.

Keep an eye on the “Trading Idea” section of www.ONN.tv for more ideas from nine different option trading strategies, courtesy of the ONN Idea Generating Platform.