Trade of the Day: Bank of New York Mellon (BK)

Debt levels at dangerous highs

By Ken Trester, Editor, Power Options Weekly

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My indicators are flashing sell signals this week for the second week in a row, and that is typical for this time of year. The S&P 500 pulled back by about 2% during the first week of September, but we haven’t seen any severe corrections so far, and I think that’s probably unlikely at this point with the S&P 500 Volatility Index (INDEXCBOE:VIX) sitting just above the 12 level. However, that doesn’t mean that traders should eschew portfolio protection.

There is a dangerous amount of debt at the corporate, government and consumer levels, and it is important that we as investors be mindful of it. Debt levels are at record highs in the U.S., and the international picture is even worse. Eventually, we are going to see a period of deleveraging and another financial crisis — it just hasn’t happened yet, as the U.S. economy is still quite strong right now.

The next financial crisis will probably look very similar to the last one, as I believe the banking system will again be what causes it. If and when the world starts to deleverage, the Fed will do whatever it can to back up the markets, but they may have to take even more drastic measures than they did a decade ago.

It’s possible the Fed could resort to implementing negative interest rates in the U.S. or even buying U.S. equities and corporate bonds when the next crisis hits, so it won’t be a good situation.

While I’m not expecting a crisis to hit in the near-term, I have been watching one financial stock that has been showing weakness, and it never hurts for traders to have some protection in their portfolios.

For that reason, I’m recommending a put on Bank of New York Mellon (NYSE:BK) today.

Buy to open the Bank of New York Mellon (BK) Dec 50 Puts (BK181221P00050000) at $1.60 or lower.

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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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