Bearish Option Volume Spikes on SunTrust Banks (STI)

01/08/2010 12:01 am EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Put volume is remarkably heavy today on SunTrust Banks, Inc. (STI), with activity surging to six times the expected level. Traders are zeroing in on the equity's February series, which is home to both of today's most actively traded put options. STI price chart

First up, the February 17 put has seen 16,280 contracts cross the tape, compared to open interest of just 148 contracts. In other words, the vast majority of today's volume consists of newly opened positions. Many of these puts have changed hands between the bid and ask prices, but several large blocks have traded at the ask, suggesting they were purchased.

Also in play is STI's February 20 put, where 6,665 contracts have crossed the tape on open interest of 694 contracts. Like the February 17 put, we can assume that most of today's activity will translate to new open interest tomorrow. Again, most of these puts have traded between the bid and ask prices, but implied volatility is up 1.9% at last check, which points to rising demand.

It's interesting to note that STI is 2.5% higher today, even as speculators add new bearish bets. The stock is actually trading above its 20-day moving average for the first time since December 9, but with STI trading north of $21 at last check, the preference for out-of-the-money puts suggests that option players are looking for a substantial decline during the short term.

Click to Enlarge

And put buyers aren't the only ones banking on a pullback. Short interest on STI jumped 32.6% during the past month, and now accounts for nearly 7% of the stock's float.

Today's rally aside, though, it's not too hard to figure out why pessimism is rising on STI. The stock has recently broken below support at its ten- and 20-week moving averages, and these intermediate-term trend lines now appear to be acting as technical resistance.

By Elizabeth Harrow of Schaeffer’s Trading Floor Blog

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on OPTIONS