Merger Buzz Boosts Deutsche Bank Call Volume

Puts have been preferred over calls in recent weeks

Dec 12, 2018 at 3:28 PM
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Deutsche Bank AG (NYSE:DB) is near the top of the New York Stock Exchange (NYSE), after a Bloomberg report suggested the German government is actively pursuing a merger between the German lender and its rival Commerzbank. The article said efforts to marry Frankfurt's two biggest lenders include changing existing laws to make the strategic move more affordable, though it underscored that any talks are in an early stage.

At last check, DB stock is trading up 10% at $9.17, pacing toward its best day since April 2017. This upside is being contained by the equity's 10-day moving average, which has ushered Deutsche Bank lower since an unsuccessful test of its 120-day moving average in late September. And year-to-date, the security is down 52%, and hit a record low of $8.23 on Monday.

deutsche bank stock chart on dec 12

Today's gap has sparked a rare surge in DB call volume, with 56,000 contracts on the tape so far -- 12 times what's typically seen. The January 2020 30-strike call is most active, though it looks like one trader may be selling to close the position they originally initiated back on Jan. 4, when Deutsche Bank shares were trading near $19.77. Elsewhere, speculators may be buying to open December 9 calls, eyeing more upside for the bank stock through the close next Friday, Dec. 21.

 Widening the sentiment scope reveals options traders have been more bearish than usual toward DB. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 2.49 ranks in the 96th annual percentile.

Whichever position options traders are taking on Deutsche Bank stock, those purchasing short-term options are having to contend with rich premiums, historically speaking. DB's 30-day at-the-money implied volatility of 46.1% ranks in the 95th annual percentile, indicating near-term options are currently pricing in higher-than-usual volatility expectations.



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