Bearish Bet on SunTrust Banks: Options
CHICAGO (
) -- Although
SunTrust Banks
(STI) - Get Report
received an "outperform" initiation from Oppenheimer and saw its target raised at Credit Suisse, at least one investor expressed moderate bearishness on the regional bank Tuesday by purchasing a horizontal put spread.
During the first hour of trading today, an investor bought the Oct./Nov. 21 put spread 5,000 times for about 85 cents per spread with the stock trading at $23.23 a share. Both the Oct. 21 puts and the Nov. 21 puts have dropped 10 cents so far on the day. The investor bought the Nov. 21 puts, currently trading at $1.40, and sold the Oct. 21 puts, currently trading at 55 cents, to offset some of the cost.
Current open interest of the Oct. 21 puts is 7,000 contracts and the Nov. 21 puts are home to current open interest of just 11 contracts.
Investors have been bearish on STI and other regional banks due to their exposure to commercial real estate. STI has enjoyed a nice rally since a 52-week low of $6 in February. The stock is currently up nearly 290% since then, but it looks like at least one investor is looking for these shares to drop below $20.15 in the fairly near term.
Heavy put buying action does not mean investors should run out and sell their STI shares. But keep in mind that at least one investor is betting on downside on looming concerns that shares of regional banks could pull back due to exposure to the commercial real estate industry.
-- Written by Jud Pyle
At the time of publication, Pyle did not hold any positions in the equities mentioned. Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."
