Citibank, Bank of America Put-Options Fly Off the Shelves

Amid all the earnings warnings, banking stocks are booking option orders hand over fist.

Bank of America(BAC Quote), Citigroup(C Quote) and Washington Mutual(WM Quote) received plenty of attention in the option pits today ahead next week's earnings announcements.

Volatility Index
Today	% Change
26.98	+1.70
Source: ILX

The July 55 put options in Bank of America were very active, with 14,721 contracts trading on the Chicago Board Options Exchange alone. A put option gives its holder the right but not the obligation to sell the stock at a specified price by a certain date. Overall, the July 55 puts traded nearly 17,000 contracts on open interest of 5,336, with the premium, or cost of the option, ranging from 90 cents ($90) to $1.50 ($150).

The activity comes on the heels of chatter that the company would preannounce earnings, according to Keith Keenan, vice president of institutional trading at Wall Street Access. Keenan attributed the activity on the CBOE to a large institutional trade in which the investor bought the puts as either a hedge against a stock position or to speculate that the share price would drop.

Nasdaq Volatility Index
Today	% Change
57.20	+1.78
Source: ILX

In addition, some investors are worried about Latin American debt issues and how that will affect the profits of some of the larger banks. One floor trader suggested that the big banks are vulnerable to bad loans and the worldwide slowdown in investment banking. Citibank was also active as the July 47 puts traded 9,200 contracts on open interest of 8,837, with the premium ticking upward to $1.35 ($135) this afternoon.

Earlier today, U.S. Bancorp Piper Jaffray initiated coverage on Bank of America with a strong buy rating and a 12-month price target of $75.

Meanwhile, investors were bullish on Washington Mutual, a financial services company heavily concentrated in mortgage lending and thus not as likely to be affected by a slowdown as the larger-cap banks with international exposure.

In the Nabor-hood

Call options in oil drilling company Nabors Industries(NBR Quote) were purchased aggressively today, one day after Merrill Lynch and Lehman Brothers trimmed their estimates on a slew of oilfield and drilling stocks. The July 35 calls traded about 14,500 contracts on open interest of 1,237 with a premium of 50 cents. Keenan characterized the activity as "very interesting" in light of the pummeling the CBOE Oil Index has taken over the last five weeks.

Shares of Nabors closed down 19 cents to $32.40 Wednesday, after trading as low as $30.70, a 52-week bottom.