I just bet against Goldman Sachs – here’s why: Trader

Bond yields, already on the decline, are expected to drop even further. According to one trader, that's bad news for bank stocks—and one very big name in particular.

The yield on the 10-year Treasury note has fallen to the lowest level since February, tracking bond yields around the world lower. This has caused considerable trouble for interest-rate-sensitive bank stocks: Financials are now the year's worst-performing sector.

"Falling bond yields and interest rates will hurt the earnings capability of the financials due to their net interest margins, which is basically borrowing in the short term, lending in the long term," Todd Gordon of TradingAnalysis.com said Friday on CNBC's "Trading Nation."

Looking specifically at the exchange-traded fund (ETF) tracking the financial sector, the XLF, Gordon observed that the product "has failed to get up to $24 and has under-performed the S&P 500 Index over the last 12 months."

One of the worst-performing financial stocks is Goldman Sachs, and Gordon sees more downside ahead for the banking giant.

"Goldman happens to be one of the weakest financials right now and this guy has just broken support at around the $153 mark," he said. "I would like to set up a trade through $153, that support is broken, and also I think this $151 mark is vulnerable. So I want to move into the short side ahead of this break."

To play for a further Goldman drop, Gordon is buying the July 150-strike put and selling the July 145-strike put for a total cost of $1.75 per share (or $175 per contract). His break-even point is just over $148.25, though if Goldman closes at or below $145 on July expiration Gordon could make a maximum profit of $325 per contract.

On the other hand, if Goldman starts looking up, Gordon wants out of the trade.

"If Goldman starts to bounce to the $151 mark [and] we get up to $151.50, I'm out. I'll cut the trade, protect risk, and move on to the next trade," he added.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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