Slumping financial stocks spark bearish option bets

*Put action in banks highlights downside risk

*Financial ETF put-to-call ratio nearly 2 to 1

*WFC put-to-call ratio at 1.94, about 217,000 puts traded

*Bank of America's busiest option is Sept $17 put strike

By Doris Frankel

CHICAGO, Sept 1 (Reuters) - Investors in options took a bearish view of several U.S. financial stocks on Tuesday, concerned that the stocks have run too far amid the broad market's 50 percent gain since March.

Wells Fargo & Co (WFC.N), JPMorgan Chase (JPM.N), Goldman Sachs Group Inc (GS.N) and American Express Co (AXP.N) all had put turnover that exceeded their call volume, indicating a bias toward bearish option plays, according to option analytics firm Trade Alert.

Investors often turn to put options, which grant them the right to sell the company's shares at a fixed price within a specified time period, to protect their existing stock holdings or to speculate on potential stock price weakness.

Worry about the soundness of financial companies dominated trader commentary during the session.

The Financial Select Sector SPDR (XLF.P) exchange-traded fund, which tracks the financial sector, fell 5.4 percent to $13.91. Nearly twice as many put options compared to call options were in play, Trade Alert data show.

Option trading was also heavy in the Direxion 3X Financial Bear Fund (FAZ.P) or FAZ, a leveraged ETF designed to move inversely to the financial sector.

About 53,000 calls changed hands, more than double the average daily volume. Investors buying call options in the FAZ, which rose nearly 14 percent to $26.43, did so on the belief that financial stocks will continue to falter.

"A head of steam has been building, based largely on events in Asia where concerns of future economic growth have been coming to the forefront," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut.

"During the last week, U.S. bond yields have slowly fallen, indicating some sense that equity market advances were perhaps a little stretched," he said. "Today that is coming home to roost in the financials."

BEARS JUMP ON TWO BIG BANKS

Aggressive put buyers stepped into Bank of America and Wells Fargo as their shares fell. On the New York Stock Exchange, Bank of America stock slid 6.4 percent to $16.46 while Wells Fargo shares dropped 4.8 percent to $26.21.

There was one big put buyer in Wells Fargo in the October $24 strike which, according to Reuters data, traded 46,390 times on the day. In Bank of America, there were various put buyers of different strikes, but notably in the September $17 put strike, said Joe Kinahan, chief derivatives strategist at thinkorswim, a division of TD Ameritrade Holding Corp.

The September $17 Bank of America put strike was its busiest contract with volume of 59,783 contracts.

"Bank of America and Wells Fargo are stocks that have enjoyed the fruits of the recent run-up in the market," Kinahan said. "Now there is the belief that these lofty stock prices can not support these valuations in those banks."

Another catalyst for the weakness in the financials might simply be fear of September -- a historically volatile month for the stock market, said Whatstrading.com option strategist Frederic Ruffy.

"Since the financials have been the most volatile in 2009, they are again leading the market lower," he said. (Editing by Jan Paschal)