I remember once, years ago, as I was walking out the door...I had been talking with my dad, and he said to me, "Anthony," (my dad never calls me Tony) and I stopped turned and he said, "Be careful." And I never forgot that. And it comes back to me often: Be careful. That was very good advice. The fear gauge, VIX as it is known to the market, is hovering at a critical level that could indicate increased investor confidence about the stock market. VIX, which recently has been at 29, is about the same level it was when the SPY was over 120 and the SPX was north of 1200. Presently, both are at 90 and 903, respectively. The financial sector, which includes banks, brokers, insurance, and real estate, is a place to be careful. From its March 2009 low to May 2009 high, the S&P Financial Spider (XLF) is up by over 100%. By comparison, the S&P 500 Spider (SPY) is up approximately 35% during the same period. Most US banks- Goldman Sachs, Morgan Stanley, Citigroup, Regions Financial Corp., Fifth Third Bank, to name a few- have in fact been able to raise billions of dollars in the past few weeks by selling shares after a broad-based financial rally. So who is buying all these new shares? I believe they are hedge funds that were caught short and now they are using these deals to cover their shorts. Also, it might be institutional money managers who feel like they missed the bottom and are now chasing these stocks! I'm not chasing! Not me, I am considering a risk reward trade favoring a directional downward bias in XLF.

Presently with XLF at $11.72 you may consider buying the June 13-11 Put spread for $1.12 debit and help finance that debit with the purchase of the June/July Calendar spread for $0.30 debit. It's profitable anywhere below $11.95 at June expiration. Max loss is $142.00, max gain at 11 is $118.00 with a little more then a 60% probability of success.

Some say that the government helped put a floor under the financial sector with all these bailout moves and allowing banks access to cheap money. Hindsight will ultimately decide this, but "be careful." That is very good advice.

thinkorswim, Inc. and its registered employee, Tony Battista, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.