WSJ: Traders Brace for Weakness in Regional Banks
By TENNILLE TRACY
FEBRUARY 12, 2010
NEW YORK—Options traders circled regional banks as several stocks in the sector failed to rise alongside the broader market.
Among the banks targeted was SunTrust Banks Inc., a regional bank based in Atlanta. A bulk of the action in SunTrust took place in the first two hours of the session, when traders pursued bearish "put spreads" in the company's April contracts. Traders could be looking to protect portfolios of SunTrust shares against declines or speculating on such moves happening.
Traders in this case bought April $22 puts and then sold April $18 puts, which help offset the cost, according to Trade Alert. Priced at $1.10, the position makes money if SunTrust slips below $20.90 before expiration on April 16. The stock closed at $22.48, losing 2.2%. The last time it dropped below $20.90 was in early January.
Similar activity took place in Fifth Third Bancorp and Comerica Inc., where traders adopted put spreads in the April and May contracts.
In Fifth Third—which closed at $11.87, up 1.5%—traders adopted put spreads in the May contracts, buying May $11 puts and selling May $9 puts.
"This looks like an opening debit spread and possibly to hedge exposure to the regional-banking sector in the months ahead," said WhatsTrading.com analyst Frederic Ruffy in a note.
In Comerica—which finished at $35.04, up 1.2%—another trader conducted a put spread in April contracts. This trader bought April $32.50 puts and sold April $27.50 puts, paying $1.10 for positions that make money if Comerica's stock falls below $31.40.
There was also considerable action in Zions Bancorp, which is based in Salt Lake City. Trading in that bank jumped to twice the normal level, with investors picking up 46,000 puts that allow them to sell the bank's stock and 7,000 calls letting them buy it, according to Track Data.
The largest transaction in Zions involved a put spread in the April contracts, whereby a trader bought April $17 puts and then sold April $13 puts. Other traders scooped up February $18 puts and longer-dated March $17 puts. The March contracts, priced at 90 cents, make money if Zions slides below $16.10.
The shares closed at $18.17, down 1.9%. The last time they slipped below $16.10 was Jan. 19.
The activity coincided with mild declines in the SPDR KBW Regional Banking ETF, which tracks the performance of several regional-banking stocks, on a day when the broader market rose. The SPDR regional-banking ETF lost 0.3% to close at $23.26, while the Dow Jones Industrial Average gained 1.05%.
Write to Tennille Tracy at tennille.tracy@dowjones.com
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