Warning: Bumpy Road Ahead

Tuesday, 4 Dec 2007 | 4:18 PM ET

JP Morgan broadly slashed numbers on the brokers Tuesday, citing more bumps in the road ahead. How’s Pete Najarian trading the news?

What does current options trading suggest about the future of financials?

By 1pm Tuesday over 300,000 XLF puts had traded versus 10,000 calls, explains Pete Najarian on CNBC’s “Closing Bell.” What that’s telling me is that over the next couple of months, into January, investors believe financials will likely go lower.

Are there any money center banks that look attractive?

Wells Fargo (WFC) and US Bancorp (USB) he says. Not only is Warren Buffett buying these companies, but I like their balance sheets and it doesn’t seem they have the same subprime exposure as many other banks.

What about the investment banks?

I love the "long Goldman (GS) short Lehman (LEH)" trade, Najarian answers. However, be careful – sometimes the market tosses out the baby with the bath water and weakness in the financials could drag down GS.

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