Options Traders Play for SunTrust Downside

Shares in SunTrust Banks (STI Quote - Cramer on STI - Stock Picks) were eclipsed by a broader rally in financials, reading 5.4% lower at $34.42 as implied volatility in its options continued to loiter around Friday's crisis levels at 213.8% (versus 147.6% historic volatility in the underlying stock). While the company drew an upgrade to "Market Perform" from "Underperform" by an analyst at Keefe Bruyette & Woods, speculation has been rife (most recently in a JPMorgan analyst report) that SunTrust could be cornered into a dividend cut.

While front-month action showed possible 2-by-1 put spread activity between strikes 30 and 40, which may or may not have been a closing position, the real kicker in SunTrust today was the fresh buying interest observed in November 22.50 puts, bought for $3.70 a contract and requiring a $15 drop for SunTrust shares (about 44% of the current share price) by Nov. 21 in order to break even.

The heavily financially exposed General Electric (GE Quote - Cramer on GE - Stock Picks) was also shunned from the upside seen in many other financial companies today, down 1.1% to $21.27. Post-earnings shrinkage in its implied volatility drew option traders into calls, where it looks like a sizable quantity of January 35-strike calls were bought at 25 cents apiece. While I cannot confirm that this was an opening position, the price paid for these calls was some 7 cents higher than the current asking price on the contract, which is valued to reflect only about a 4% likelihood of landing in the money today.

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