Zions, M&T See Big Put Trades

Bank stocks continue to grab headlines as investors try to determine if there are more writedowns to come and what impact the slowing economy is going to have on earnings.

Today, we saw some interesting put option activity in two regional banks, Zions Bancorporation (ZION Quote) and M&T Bank(MTB Quote). In both cases, the customer was trading what is known as a one-by-two. They were selling (likely to close) an in-the-money put, then buying two puts with a strike closer to being at the money. Because the in-the-money put that they sold had a price higher than two times the at-the-money puts, the investor collected some premium.

Let's start with M&T. The customer sold 5,000 of the Jan. 80 puts for $23.10. At the same time, they bought 10,000 of the Jan. 60 puts for $6.40 each. The $23.10 that the investor collects vs. the $6.40 that they paid twice means that the investor collected $10.30.

In Zions, the customer did two spreads. First, they sold 5,000 of the Jan. 35 puts for $10.60 and bought 10,000 of the Jan. 25 puts for $3.70. Then later on this morning, they sold 5,000 of the Jan. 40 puts for $15.70 and bought another 10,000 of the Jan. 25 puts for $4. So they net collect $3.20 and $7.70, respectively.

So what could be the possible motive for this type of activity? Well, for starters, let's remember that the Jan. 2009 options have been listed for a very long time, over two years in fact. And the open interest in the options that were sold is almost an identical match for the volume that was sold today.