By Jud Pyle, CFA, chief investment strategist for the Options News Network

Looking at the September 7.50 strike puts in the Swiss banking behemoth UBS ( UBS), we find that they have traded more than 10,000 times in the first 10 minutes of trading today vs. current open interest of 599 for an average price of around $1.30.

What is interesting about this put activity is that most of the activity is from buyers of the options, and that the strike price of these puts is more than 30% below the current stock price.

In order for these puts to be profitable at expiration, the stock needs to be lower than $6.20, which is the strike of the put minus the premium that was paid. Despite all of the recent turmoil ranging from massive losses on mortgage-backed securities and a tax-evasion scandal that resulted in UBS having to provide names of account holders, the shares still never dipped as low as $6.20. The 52-week closing low was $7.24 on March 9.

The thought of UBS dipping back down another 30% from current levels is of course possible. We have learned in this financial crisis that anything can happen. We have also seen plenty of unusual put-buying that has preceded drops in many financial stocks. But it is noteworthy that UBS shares have spent most of the day in positive territory, despite a selloff in the broader market, and financial shares in general.

Put-option activity like this does not mean that investors should run out and sell their shares of UBS. After all, this could be an investor buying the puts and buying stock on a ratio. The puts provide disaster insurance but the real view is that the stock could rip back to its old level. However, it is worth noting this activity because it reminds us of just how different things are in this market, and that nothing is out of the realm of possibility when it comes to downside stock moves.

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."

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