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Fifth Third Bancorp (FITB) Trader Bets Against Volatility

The headline trade in FITB's options pits is a short straddle

by 12/19/2013 2:10 PM
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Option Brief: Fifth Third Bancorp (NASDAQ:FITB) options volume has skyrocketed today to roughly 36,000 contracts -- more than 12 times the average intraday amount. The rapid pace of trading is even more pronounced on the put side, where the 23,000 contracts traded dwarf the expected intraday volume of 1,455.

Accounting for roughly 60% of FITB's total options volume was a pair of block trades at the February 2014 21-strike call and 21-strike put. Just after noon, 10,500-lots at both positions crossed the tape -- each at the bid price, suggesting they were seller-driven. Since open interest levels at the call and put are much lower than their respective volumes today, it's safe to assume new positions were created in the construction of a short straddle.

In essence, the strategy is an anti-volatility play. Today's option seller received a total of $1.43 for each pair of options -- $0.49 per call, plus $0.94 per put -- which represents his maximum potential profit. The individual will come out in the green as long as FITB remains perched between $22.43 (strike price plus premium received) and $19.57 (strike price less premium received) at February 2014 options expiration. At last check, the shares were floating near $20.69. However, losses will begin to accrue beyond those two breakeven points, meaning the short straddle comes with unlimited risk (despite its limited reward potential).

From a fundamental perspective, Fifth Third Bancorp (NASDAQ:FITB) will reach its ex-dividend date next Friday, Dec. 27. Also, within the aforementioned options' lifetime, the banking name is scheduled to report fourth-quarter financial results. Specifically, FITB will enter the earnings confessional before the market opens on Thursday, Jan. 23.


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