For the last two days, we have seen put-buyers in mutual fund firm T. Rowe Price.
First, we saw a buyer Monday in the first hour of trading of more than 2,000 of the April 30 strike puts for around $4.80 with the stock at $35.42. This was an implied volatility of roughly 92, and open interest at the time was just 251. The stock proceeded to rally to close at $36.64.
Goldman Sachs downgraded the T. Rowe shares Tuesday morning to sell from neutral on concerns that the company would see net outflows of assets under management for the first time since 2001. Add into that the obvious, that since the broad market is down more than 30%, by definition revenue will be down as well.
Once the market opened Tuesday, we saw further put-buying. This time, it was the April 25 puts, trading more than 2,800 times for $3.70, with the stock down more than $2.50 on the day to $34.13. This time, the implied volatility hit 107, and again, open interest is a paltry 137.
So what can we say about this type of action in the puts? Well, aside from the obvious bearish sentiment, it is worth noting that in order for both the April 25 and 30 puts to be in the money at expiration, the stock will have to have dropped
its low of $25.13, which it reached Nov. 20.
However, the put-buyer may also just be betting on a snap lower in the shares after the run of better than 40% that the shares had from the lows on Nov. 20 up until Monday's close. The April 30 puts, for example, are already marked at $5.40, demonstrating how option players do not need to wait until expiration to have an option trade play out.
This activity in TROW may also play out in other sectors of the market that have had large runs since the lows that we reached Nov 20.
and the rest of the regional bank sector is one example. Option investors should keep this potential for retracement in mind.
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. Pyle writes regularly about options investing for TheStreet.com.