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Strategist: More Volatility In Mortgage Sector

Tuesday, 12 Dec 2006 | 1:47 PM ET

Lately, investors have seen an increase in trades among the mortgage lenders. What does that say about the financial services sector? CNBC's Sue Herera asked Stacey Briere Gilbert, Chief Options Strategist at Susquehana Financial.

Gilbert said looking at the financial markets from a "30,000 foot approach" -- she focuses on the XLF– the financial selects spider, the BKX– the Banking Index - and XPD- the Broker Dealer Index. They all show an increase in volatility buying.

Mortgage lenders, especially, have seen an increased number of put buyers (a bondholder's right to redeem a bond before maturity). That suggests an increased risk with those stocks.

The bottom line: The marketplace is positioning itself for increased volatility in the sector.

As we told you a few days ago, late payments on sub-prime loans have surged and a continued rise could hurt investors in mortgage-backed securities.

Inside Track
Discussing increased trading in the mortgage lenders and what it could signal for future Fed meetings, with Stacey Briere Gilbert, Susquehanna Financial Chief Options Strategist, and CNBC's Sue Herera
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KBW BANK
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SPDR FIN SEL
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  • Sue Herera is a founding member of CNBC, helping to launch the network in 1989. She is co-anchor of "Power Lunch."

  • Tyler Mathisen co-anchors CNBC's "Power Lunch." Mathisen also co-anchors "Nightly Business Report produced by CNBC."

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