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Options Traders Swarm European Banking Stocks

Amid waning expectations for a "Brexit" ahead of the U.K. vote on June 23, options players are circling the EUFN, as well as European banks DB and CS

Jun 20, 2016 at 3:25 PM
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Banking stocks are leading the charge higher today, as the latest polls suggest waning support for a "Brexit" ahead of Thursday's highly anticipated vote in the U.K. -- a boon for the financial sector, which is thought to be especially vulnerable to potential "Brexit" aftershocks. Against this backdrop, "safe havens" like gold and the iShares 20+ Year Treasury Bond ETF (TLT) are taking a breather, and options players are circling the iShares MSCI Europe Financials ETF (EUFN), as well as European-based banking stocks Deutsche Bank AG (USA) (NYSE:DB) and Credit Suisse Group AG (ADR) (NYSE:CS), all of which are on the mend.

EUFN is up 3.7% at $18.14, after flirting with four-month lows last week. Still, the fund remains more than 10% lower in 2016, and continues to stare up at the $20 region. This area not only contained EUFN's pullback in October 2014, but it also marks a 50% Fibonacci retracement of the fund's rally from July 2012 to July 2014, wherein the shares roughly doubled.

In the options pits, EUFN contracts are going off at 64 times the average intraday rate, with puts outnumbering calls. In fact, intraday volume is running in the 99th percentile of its annual range, after hitting a 52-week peak on Friday. Short-term traders are paying up for EUFN options, too, as the ETF's Schaeffer's Volatility Index (SVI) sits at an annual high of its own, at 58%.

It looks like some speculators are selling to open the July 15 put, to bet on a short-term floor at $15 for EUFN. More "vanilla" bulls are buying to open the July 19 call, which will move into the money if iShares MSCI Europe Financials ETF (EUFN) topples $19 by Friday, July 15, when front-month options expire.

DB has advanced 4.5% to sit at $16.33, just two sessions after plunging to a record low of $14.13 (and perpetuating the "horrible June" trend). DB calls are trading at about twice the average afternoon pace, roughly neck-and-neck with DB puts. The July 17 call is most active, and delta on the call jumped from 0.31 on Friday to 0.41 today, reflecting the growing odds of expiring in the money. Meanwhile, the July 16 put has garnered its fair share of apparent buy-to-open action, with speculators gambling on a short-term retreat for Deutsche Bank AG (USA) (NYSE:DB).

CS is in the same boat, up 2.8% at $12.90, after hitting an all-time low of $11.58 on Thursday. Credit Suisse Group AG (ADR) (NYSE:CS) calls are flying off the shelves at six times the normal intraday pace, with most of the action attributable to big blocks of September 15 calls bought to open, per Trade-Alert. By purchasing 5,000 calls for $0.35 apiece, one trader forked over $175,000 (number of contracts * 100 shares per contract * $0.35), and will begin to make money if CS conquers $15.35 (strike plus premium paid) by front-month expiration. CS hasn't traded north of $15.35 since late April.
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