3 Bank Stocks Rewarding Option Bears

The "Brexit" vote is crushing financial stocks, which should be good news for bearish options traders

Jun 24, 2016 at 3:27 PM
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While gold prices and volatility surge higher following Thursday's "Brexit" vote in the U.K., bank stocks are getting crushed. Several bank stocks are seeing elevated options volume today, such as Barclays PLC (ADR) (NYSE:BCS)JPMorgan Chase & Co. (NYSE:JPM), and Morgan Stanley (NYSE:MS). However, the options activity on these stocks leading up to today is just as interesting. Let's take a closer look at how options traders have been playing BCS, JPM, and MS. 

London-based BCS is having an especially tough time today. After dropping all the way to $8.13 -- a four-year low -- in early trading, the stock was last seen 19.4% lower at $9.02, earning a spot on the short-sale restricted list (SSR). What's more Independent Research downgraded the stock's rating to "sell" and lowered its price target to GBP 130, while HSBC cut its price target to 160P from 175P. Today's drop brings the bank stock's year-to-date loss to 30%. It appears options traders have been betting on downside, too. 

Specifically, the stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 4.07, which ranks in the 84th annual percentile. This means put buying has been much more popular than usual. 

Today, call and put volume are roughly neck-and-neck, running at six times and three times their respective intraday norms. The most popular option overall is the July 9 put, with the July 9 call close behind. Both of these strikes are seeing a mix of fresh buying and selling activity, as traders speculate on where Barclays PLC (ADR) (NYSE:BCS) goes from here. 

As for JPM, the stock was last seen 6.4% lower at $59.97, on pace for its first close below its 100-day moving average since before its April bull gap. While CEO Jamie Dimon said the company "may need to make changes" in Europe as a result of the vote, options traders may be hoping for a short-term reprieve from the sell-off. 

Over the past two weeks at the ISE, CBOE, and PHLX, JPMorgan Chase & Co. (NYSE:JPM) has racked up a put/call volume ratio of 1.13, which tops 79% of all other readings from the past year. It's more of the same today, with puts crossing at triple the normal intraday clip. However, there appears to be substantial ​sell​-to-open activity at the leading July 59 put, as traders bet on a technical floor at this level through front-month expiration. 

Lastly, MS has lost 9.5% to hit $24.70. While the company denied reports that it's already begun shifting jobs out of London, it conceded in a statement that the U.K.'s "vote to leave the EU is a very significant decision which will have a considerable impact." In the meantime, put volume is at five times what's normally seen at this point in the day. The August 24 strike has seen the most activity, possibly due to one trader rolling down his position from the August 26 put in anticipation of further downside. 

Morgan Stanley (NYSE:MS) options traders were bearish coming into today, too. The stock's 10-day put/call volume ratio across the major exchanges comes in at 1.45 -- in the 79th annual percentile. 

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