Stock Traders Buy Put Options Amid Trump Skepticism

Shaken confidence in the Trump administrationhas fueled accelerated put buying among options traders

Mar 30, 2017 at 2:04 PM
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The "Trump rally" culminated in record highs for the major stock market indexes in early March, but since then the S&P 500 Index (SPX) has lost some steam. The Republican-led healthcare bill that was supposed to replace Obamacare never came to a vote, due to lack of support in the House, which shook stock traders' confidence in the Trump administration's ability to follow through on campaign promises. Against this backdrop, options traders have bought to open puts over calls at a faster-than-usual clip, pointing to escalating pessimism.

Put Buying Accelerates to Highest Point Since January

The 10-day equity-only buy-to-open put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) peaked at 0.75 on Nov. 10, just after Election Day, marking the highest point since May 2016. The ratio subsequently dropped as low as 0.56 on March 16, the lowest point since early June, just before the Brexit vote.

In the two weeks since, the put/call ratio has surged back up to 0.64 -- the highest since early January, when stocks were struggling to continue their post-election momentum. Prior to that, you'd have to go back to mid-November -- when the ratio encompassed pre-election jitters -- for a higher reading.


stock options puts calls bought to open with SPX


BAC, BBBY Stocks Attracting Option Bears

Among the stocks with notable put activity during the past two weeks is big-cap finance concern Bank of America Corp (NYSE:BAC). Bank stocks took a hit on March 21, as the aforementioned concerns about the Trump agenda began to surface, fueling doubt about the administration's ability to deliver on promises of financial deregulation and tax reform. Specifically, BAC's weekly 3/24 23-strike put saw more than 100,000 contracts trade in the past two weeks -- among the top 20 most popular equity options. What's more, a healthy number of the puts were bought to open, with traders expecting BAC to extend its retreat beneath $23 through the close on Friday, March 24, when the weekly options expired. However, BAC ended last week at $23.12.

Bed Bath & Beyond stock has also been attracting options bears ahead of next week's earnings report. Shares of the retailer hit a six-year low of $37.78 on March 27, as reports surfaced that Amazon.com could open brick-and-mortar furniture stores. BBBY now sports a 10-day put/call volume ratio of 2.06 on the ISE, CBOE, and PHLX, which is in the 85th percentile of its annual range. Attracting the most attention during the past two weeks has been the April 38 put, with roughly 3,000 contracts added, many of which were bought to open. The BBBY options traders are expecting the shares to extend their quest for new lows in the near term. History is on the side of the bears, as BBBY has been among the worst stocks to own in the second quarter over the past 10 years.


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