Deutsche Bank AG (DB) Record Low Lures Possible Put Buyers

Deutsche Bank AG (USA) (DB) is the worst-performing stock on the NYSE

Sep 26, 2016 at 12:08 PM
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Deutsche Bank AG (USA) (NYSE:DB) has sparked a sell-off in bank stocks, after a report out of Germany suggested Chancellor Angela Merkel has ruled against bailing out the financial firm. While it claims it doesn't need government assistance, DB faces a $14 billion Justice Department fine to settle a mortgage-backed securities probe. As fundamental follies build up, the stock faces bearish bettors in the options pits.

At last check, DB put options are trading at double the rate of calls and at seven times their usual intraday pace. The most active strike is the out-of-the-money December 10 put, where speculators may be purchasing new positions. If this is the case, the traders foresee the bank stock tumbling into single-digit territory -- and taking out today's record low of $11.84 -- by December expiration.

Put buying is par for the course, when it comes to DB's options pits. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.56 puts for every call. Echoing this put-skew -- particularly among near-the-money strikes in the October series -- is the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 1.48.

Pessimism has been piling up elsewhere, as well. During the last two reporting periods, short interest on DB swelled close to 24%. Right now, roughly 42 million shares are dedicated to short interest, which would take more than two weeks to cover, at the stock's usual trading pace.
 
There's good reason for traders to be bearish, too. As alluded to, Deutsche Bank AG (USA) (NYSE:DB) is fresh off an all-time low, and was last seen off 7% at $11.86. In fact, the bank stock is currently the worst performer on the New York Stock Exchange.

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