Just hours after I delivered a trade recommendation to hedge the coronavirus market drop, markets took another 3% to 4% hit. That’s how fast shares are moving right now.

There are a lot of unknowns when it comes to what’s ahead for the coronavirus market impact.

But using my history of trading in the stock market, I’ve found there is a sector that often leads the market lower in similar circumstances as we have today: the financials.

I’ve been focusing on this group for the last week.

A closer look shows us that there are a couple of companies within the financial sector that have actually not been making new highs, have been trading level since December, and are now starting to lead the rest of the sector down.

These are what I refer to as my “Worst in Breed” stock picks as opposed to my usual “Best in Breed” picks. A “Worst in Breed” pick is a stock leading a hard-hit sector even lower.

The coronavirus is going to have a global impact on the economy, which we’ll see play out in the financials. These stocks are intertwined with all the large economies. There will be continued weakness in this sector.

That’s why today, I’m going to show you a way to play the entire sector’s drop with two trades that are so easy to execute, even my mother could do it.

Remember, there’s no such thing as a shortage of opportunity – even among rising market panic – so long as you know where to look…

Two Simple, Fear-Hedging Plays

The first step to take is to buy an inverse ETF. These are ETFs that move in the opposite direction of the overall market or a specific sector. They’re a great hedge to own when markets are falling.

In this particular case, it’s going to be the ProShares Ultrashort Financials (NYSE: SKF). You’ll want to place a limit order to buy SKF for $15.50.

SKF is the inverse play to the Financial Select Sector SPDR Fund (NYSEArca: XLF). As XLF continues to go lower, SKF will go higher. This makes it a great and easy way to hedge against the falling financials.

Now, when I start to look at my “Worst in Breed” company in the financial sector, one in particular is looking at me straight in the face and saying that it’s going to run into problems as we go through the next three to six months.

That company is none other than JPMorgan Chase & Co. (NYSE: JPM).

Now, JPM was trading around $130 and moved back down to $122 or so. The reason that it’s bouncing right now is because we’re seeing a “dead cat bounce” in its stock price. Once it gets back up to around $128 or $130, that’s when it’s time to short it.

Over the next three to six months, my price target for JPM is down around the $110 level, so what you want to do is buy a July 17, 2020 $120 JPM put (JPM200717P00110000) using a price of $7 or less.

Leveraging the drop in JPM could hand you a potential 75% to 125% profit on that sell-off.

We’ll continue watching as the financials get tested over the next couple of months and the markets continue to struggle and move lower.

— Chris Johnson

Source: Money Morning