Big Bearish Option Spread Placed on Bank Stock

01/03/2011 10:57 am EST


Elizabeth Harrow

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

Put options on Fifth Third Bancorp (FITB) experienced a surge in popularity late last week, with approximately 18,000 contracts crossing the tape on Friday, easily outpacing the equity's average daily put volume of just 4,468 contracts. Checking out the day's major block trades, it looks like one speculator has constructed a bearishly biased spread on the regional banking issue.

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Specifically, the trader constructed a three-tiered put spread by purchasing the near-the-money February 14 put, selling the February 12 put, and buying the February 10 put. FITB is currently trading just shy of $15, placing all three of these put strikes out of the money.

However, today's dose of bearish speculation is just a drop in the bucket for FITB. During the past ten days, traders on the International Securities Exchange (ISE) have bought to open nearly seven puts for every call on the equity. This ratio ranks higher than 90% of other such readings taken within the previous year, indicating that traders have rarely purchased puts over calls at a faster pace.

So far, FITB is defying traders' low expectations. The stock was up 1% early on Friday, extending a short-term rally along the support of its ten-day moving average. In fact, FITB is poised to close out 2010 on a healthy year-to-date gain of more than 50%.

By Elizabeth Harrow, contributor, Schaeffer’s Trading Floor Blog

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