Financial Select SPDR (XLF) – Index and ETFs

November 7, 2007 | Posted by Jorge

With the financial mess the market’s seen as of late, it may be a good time to talk about the XLF, or the Financial Select SPDR. If, for whatever reason, you need some exposure to the financial sector, this ETF may be your ticket (although you might as well just hand me your money…).

What is the XLF: Quite simply, anything and everything financial can be represented in the XLF ETF. Largest holdings in the XLF include Citigroup, Bank of America, Wachovia, Wells Fargo (Cramer favorite), etc. As you can see, the XLF incorporates big name financial institutions.

Why use the XLF: Wide exposure to the financial sector, plain and simple. The XLF is diversified in terms of the types of different financial institutions (banks, investment brokers, etc.) but in today’s market, anything financial is seen as a negative until the subprime mess has passed.

XLF Options Structure: Currently, the XLF trades in $1 strike price increments with $0.01 bid/ask spreads near the money.

Currently, the XLF is being used as downside protection against the financial sector and more broadly the market. I’m not exactly sure but I believe the financial sector is the largest, by percentage, in the S&P 500 with the oil sector a close second (I’ll go back and recheck that statement). Even with the current string of rate cuts, the XLF has fallen from a high of about $38 to today’s closing price of about $30.

If you’re in need to playing with fire, the XLF may be the torch you need. Personally, if something has anything to do with anything financial, I’m passing right by. The play is just too risky and unknown for my taste.

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