Put Activity on Regional Banks: Options
CHICAGO (
) -- While there hasn't been any significant news in
BB&T
(BBT) - Get Report
nor
M&T Bank
(MTB) - Get Report
, at least one investor has expressed moderate bearishness on the possibility of a pullback because of their exposure to commercial real estate portfolios.
During early afternoon trading, an investor bought 6,000 BBT Jan. 2010 21/26 put spreads for about $1.15 per spread. The Jan. 26 puts are up 10 cents to $1.75 so far on the day, and the Jan. 21 puts have climbed five cents to approximately 60 cents. This put spread buyer bought the Jan. 26 puts and sold the Jan. 21 puts to offset some of the cost.
The open interest of the Jan. 21 puts is 708 contracts and the Jan. 26 puts are home to current open interest of 755 contracts.
BBT shares have enjoyed a 42% rally after a recent low of $20 in July, which could be a reason why we're seeing an investor buy put spreads. Shares of MTB have rallied 46% since its June lows.
These nice runs in the stocks could be a reason why investors are looking for downside protection on concerns about regional banks and their exposure to commercial real estate portfolios, which is what differentiates them from money-center banks like
Wells Fargo
(WFC) - Get Report
.
BBT investors could make a maximum of $3.85 on this trade, and the maximum loss is the cost of the spread ($1.15 each).
We also saw interesting put spread buying activity in the MTB January expiration month. The Jan. 2010 45 puts and Jan. 2010 55 puts have changed hands 5,000 times each so far today.
So far on the day, the Jan. 45 puts, home to current open interest of 270 contracts, have rallied two cents to $1.10, and the Jan. 55 puts, home to current open interest of 184 contracts, are trading up 17 cents to about $3.10. MTB shares are currently down $1.12 to $64.92 on the day.
It looks like a put spread buyer purchased the out-of-the-money Jan. 55 puts and offset the cost by selling the further-out-of-the-money Jan. 45 puts to pay a net cost of $2. MTB investors could make a maximum of $8 on this trade, and the maximum loss on this put spread purchase is $2 each.
Heavy put buying action does not mean investors should run out and sell their BBT and MTB shares. But keep in mind that some investors are betting on downside in these regional bank names after they missed last week's rally.
-- Written by Jud Pyle in Chicago
At the time of publication, Pyle did not hold positions in any stocks 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."
