PrivateBancorp Calls See Heavy Selling

By David Russell, reporter at OptionMonster

CHICAGO (TheStreet) -- PrivateBancorp(PVTB Quote) is trying to rebound from a gut-wrenching selloff, but traders have other ideas.

OptionMonster's tracking systems detected heavy selling of the November 12.50 calls for 10 cents to 20 cents Thursday as the stock rallied against a broader market decline. Volume surged to 4,286 contracts, almost five times open interest in the strike.

Shares of the Chicago-based lender climbed 5% to $10.71 Thursday, but is valued at less than half its price a month ago. Burdened with writedowns from commercial real estate, the bank gapped lower after surprising the market with a huge loss on Oct. 26 and announced plans to raise more capital.

By writing calls, investors are expressing a belief the shares will remain below $12.50 by expiration at the end of next week. They were probably sold by shareholders looking to earn premium and reduce their cost bases.

Our screening programs also detected activity in the November 10 puts, which traded 1,228 times for 10 cents to 30 cents against open interest of 1,154 contracts. Purchases accounted for at least two-thirds of the activity.

It appears that some investors bought back contracts they had sold at higher prices when the shares were trading lower and volatility was higher, while others opened new positions to guard against further downside. Both explanations reflect a negative outlook for the shares through expiration.

Overall options volume in PrivateBancorp was four times greater than average Thursday. More calls were sold than were bought, and vice versa for puts, which reflects a negative sentiment.