By Jud Pyle, CFA, chief investment strategist for the Options News Network
At least one investor is emptying his stash of puts as
shares continue to surge this morning due to reports that the Boston-based bank is healthier than expected.
Shares of the world's largest money manager for institutions are currently trading around $36.90, up nearly 5% from Tuesday's close. STT stock has doubled since it dipped to $17.61 on March 9.
Looking at the STT August 25 puts, which are out of the money by more than 32%, we see that more than 15,300 contracts traded within the first hour of trading today. Even more interesting is that about 15,200 of these puts were sold in the first 20 minutes of the trading day, according to ONN.tv's Sidewinder report. The August 25 puts are currently trading for around $1.70 vs. current open interest of 15,383.
I highlighted STT about three weeks ago because buyers dominated the bulk of the August 25 put volume on April 15. When that article went to press, the puts were trading for $3.90 with the stock around $34.60. That pushed implied volatility of the puts up to 112. Since then, implied volatility for these puts has tumbled to 86.5. The current reading is even lower than earlier this morning, when implied volatility clocked in at 97.4. Implicitly, you can tell that implied volatility is lower because the puts are down $2.30 with the stock up the same amount.
According to reports this morning, some analysts believe STT is one of the banks facing stress tests Friday that may be in better shape than, for example,
Bank of America
Analysts also said
Bank of New York Mellon
will fare better in the stress tests -- so far today, GS and BK shares are up $1.40 and 72 cents, respectively.
Put selling such as what we are seeing today on STT does not necessarily mean that investors should run right out and buy shares in the company. But it does demonstrate that the bearish sentiment we saw less than a month ago on STT might be dissipating as the put owner is selling his puts before they lose any more value.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
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."