Put One-by-Two in Zions
By Jud Pyle, CFA, chief investment strategist for the Options News Network
NEW YORK (TheStreet) -- Zions Bancorp (ZION) - Get Report released comments from the Citi Financial Conference today that it plans to repay TARP funds after credit conditions and earnings outlook improve, which buoyed the stock more than 7% during midday trading. Options action from at least one investor, however, suggests a bet on a pullback in the next 38 days.
ZION shares closed up $1.23 to $20.49. The stock recently breached the $20-mark in February, but it looks like at least one investor thinks this rally could end sooner rather than later.
Around 11 a.m. EST, an investor sold 22,000 out-of-the-money April 17 puts for the bid price of 30 cents per contract and simultaneously bought roughly 10,000 out-of-the-money April 19 puts for 78 cents per contract to pay a net debit of roughly 12 cents per ratio spread. The 17-strike puts have dropped 16 cents, and the 19-strike puts have declined 36 cents so far on the day. Current open interest of the April 17 puts and April 19 puts is 26,000 contracts and 4,700 contracts, respectively.
Though this trade looks like a lot of put volume at face value, investors bought some of the puts and sold others, so that is why we say that this is
moderately
bearish instead of exceedingly bearish. A look at the OptionsHouse Profit & Loss Calculator tool shows the risk/reward dynamics of this ratio put spread.
Investors could make a maximum profit of $1,880,000 if ZION shares close right at $17 at April options expiration. Maximum loss on this spread is $120,000 if ZION shares close higher than $19. Investors could also lose money if the stock drops lower than $13.18, which again, is why we say it is just moderately bearish.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) 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."
