Bank stocks continue to grab headlines as investors try to determine if there are more writedowns to come and what impact the slowing economy is going to have on earnings.

Today, we saw some interesting put option activity in two regional banks,

Zions Bancorporation

(ZION) - Get Report


M&T Bank (MTB) - Get Report

. In both cases, the customer was trading what is known as a one-by-two. They were selling (likely to close) an in-the-money put, then buying two puts with a strike closer to being at the money. Because the in-the-money put that they sold had a price higher than two times the at-the-money puts, the investor collected some premium.

Let's start with M&T. The customer sold 5,000 of the Jan. 80 puts for $23.10. At the same time, they bought 10,000 of the Jan. 60 puts for $6.40 each. The $23.10 that the investor collects vs. the $6.40 that they paid twice means that the investor collected $10.30.

In Zions, the customer did two spreads. First, they sold 5,000 of the Jan. 35 puts for $10.60 and bought 10,000 of the Jan. 25 puts for $3.70. Then later on this morning, they sold 5,000 of the Jan. 40 puts for $15.70 and bought another 10,000 of the Jan. 25 puts for $4. So they net collect $3.20 and $7.70, respectively.

So what could be the possible motive for this type of activity? Well, for starters, let's remember that the Jan. 2009 options have been listed for a very long time, over two years in fact. And the open interest in the options that were sold is almost an identical match for the volume that was sold today.

Finally, shares of Zions are down nearly 50% year to date from $46.69 to around $24 now. M&T is down over 30% from $81.57 to around $56 today. After declines like those, if the investor owned these puts for a long time, they are taking some profits in case the shares were to rally from here. But they also get twice as much protection now as they had before because they bought two puts for every one put that they sold.

Activity like this does not mean that investors should go out and sell M&T and Zions. But it is helpful to know that there is at least one investor out there who believes that further declines could be in the offing between now and the expiration on Jan. 16.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for

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."