FINSUM + Magnifi: Fear rising inflation? Here’s How to Play It

(February 2021)

Inflation concerns are on the rise. The Fed has reacted with large unprecedented moves to the Covid-19 recession. The Biden administration is coming out of the gates swinging with a proposed $1.9 trillion stimulus package, that even has debt dove Larry Summers, former secretary of the Treasury for Democrat Bill Clinton, voicing fears of inflation's return. It’s not just talking heads either, the data can speak for itself. Treasury yields are on the rise and the 10-year-break even inflation rate reached a 6-year peak. Generally speaking, the banking sector is speaking to the same tune as the Fed, and given the Fed isn’t stepping off the gas pedal the SPDR regional banking ETF (KRE) is a way investors can align themselves with Fed’s zeitgeist. The regional banks are in tune with the local loan markets and are more responsive to policy than the day-to-day financial news cycle. KRE is trading at $61.83, by buying a $61 put option for $4.40 and a $65 call option for $3.90 in June, investors can bet that the Fed and the Biden administration are going to hold steadfast until they “see the whites of the eyes of inflation”.

(New York)

FINSUM + Magnifi: KRE has been a strong fund throughout the pandemic and seems especially poised to reap the benefits if policymakers remain faithful to their convictions when it comes to inflation. 

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