Skip to main content

Since the market began rallying on September 1, PNC Financial Services (PNC) - Get PNC Financial Services Group, Inc. Report has been one of the better performing stocks. The second-tier bank has moved with some of the other banks in that sector (Fifth Third (FITB) - Get Fifth Third Bancorp Report, for instance). Since its low on August 25, PNC has rallied over 16%. A pretty smart customer seems to think the stock will be heading back to its lows.

The customer had been long PNC September 57.5 puts from early August when PNC was trading over $60.00. The stock has come back down to earth and is trading at $55.03, at the time of writing. The customer, it appears, did not take the position on its lows and is only doing so now on a roll to the next expiry. The customer unwound the PNC September 57.5 puts and rolled into the PNC October 55/49 put spread for a net of just under $1.45. In the process, the customer rallied the implied volatility of the October 55 puts by about one point.

I am in agreement with this customer, and knowing that he or she has been right before, I am not going to be one to argue with him or her. However, I think I would rather take a credit on this this one, especially since the customer rallied implied volatility a touch. I will sell to open the PNC October 55/57.5 call spread at around $1.20

Trade: Sell to open PNC October 55 calls at $2.30 and buy to open PNC October 57.5 calls for $1.10, with the stock trading around $55.50.

The net credit for this call spread is $1.20.

Since the market began rallying on September 1, PNC Financial Services (PNC) has been one of the better performing stocks. The second-tier bank has moved with some of the other banks in that sector (Fifth Third (FITB), for instance). Since its low on August 25, PNC has rallied over 16%. A pretty smart customer seems to think the stock will be heading back to its lows.

The customer had been long PNC September 57.5 puts from early August when PNC was trading over $60.00. The stock has come back down to earth and is trading at $55.03, at the time of writing. The customer, it appears, did not take the position on its lows and is only doing so now on a roll to the next expiry. The customer unwound the PNC September 57.5 puts and rolled into the PNC October 55/49 put spread for a net of just under $1.45. In the process, the customer rallied the implied volatility of the October 55 puts by about one point.

I am in agreement with this customer, and knowing that he or she has been right before, I am not going to be one to argue with him or her. However, I think I would rather take a credit on this this one, especially since the customer rallied implied volatility a touch. I will sell to open the PNC October 55/57.5 call spread at around $1.20

Trade: Sell to open PNC October 55 calls at $2.30 and buy to open PNC October 57.5 calls for $1.10, with the stock trading around $55.50.

TheStreet Recommends

The net credit for this call spread is $1.20.

At the time of publication, Mark Sebastian held no positions in the stocks or issues mentioned.

Mark is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange, and is currently the Director of Education at The OptionPit.com and the Director of Risk Management for a private hedge fund. Mark also writes Option911.com, a popular index and equity options blog.

OptionsProfitsFor actionable options trade ideas from a team of experts, visit TheStreet's OptionsProfits now.

Readers Also Like:

>>Options Trading in Risk Arbitrage Situations

Readers Also Like:

>>Down, but Not Out

Readers Also Like:

>>IBM-Idiot Boxes Not For Us