Blake Young just connected two dots that most traders are missing. Energy stocks broke out to new highs today while consumer finance companies are breaking down to new lows.
That collision has a target.
Oil doesn't even need to go higher for this thesis to work. Energy companies are approaching peak margins at current crude levels, and gas prices aren't fading anytime soon. The consumers paying those prices are getting squeezed, and the lenders exposed to them are starting to crack.
XLF has dropped more than 15% from its peak, falling from $56 to $48 and printing a new 12-month low today. Blake dug deeper than the broad financials to isolate the most vulnerable names in the space.
His focus is on consumer finance companies with little or no collateral behind their loans. Klarna will finance a DoorDash order through buy now, pay later. Affirm Holdings doesn't have any assets backing what they lend. When defaults accelerate, there is nothing to recover.
Blake walked through the options math on four consumer finance names in tonight's video:
- Capital One Financial: Blake's top setup. He outlined a 190/165 put spread for $11.50 on a $25 wide spread. The probability math gives a 53% chance of profit while only needing to be right 46% of the time.
- Affirm Holdings: Down more than 8% today on above-average volume, breaking below the lower Bollinger Band. Blake sees another 15% downside but is waiting for better option pricing before entering.
- Klarna: The recent IPO is already way down and hard to borrow short. Blake found a short call vertical selling the 16/17 spread for $0.37, giving him a 67% probability of profit against a 63% breakeven threshold.
- Ally Financial: Sitting at previous lows with a gap up today. Blake flagged a short call vertical at $0.30 as a fair price trade but wants to wait for a bounce before leaning in heavy.
The thesis is straightforward. If oil prices stay elevated, gas prices stay high and consumers keep getting squeezed. The lenders who gave those consumers unsecured credit are the most exposed names on the board.