Major international money center bank Deutsche Bank (DB) has been under pressure, and shares are down 20 percent over the past year. One trader sees further weakness in the coming months.
That’s based on the May $8 puts. With 53 days until expiration, 13,388 contracts traded compared to a prior open interest of 369, for a 36-fold rise in volume on the trade. The buyer of the puts paid $0.80 to make the bearish bet.
Deutsche Bank shares recently went for about $9.50, so the stock would need to decline $1.50, or nearly 20 percent, for the options to move in-the-money. A steep collapse like that at Credit Suisse could cause such a move, above and beyond any banking fears in general right now.
Given that DB shares have traded as low as $7.24 in the past year, this could be a good way to profit from any more fears in the banking sector over the next few months.
Action to take: There are other banks that investors can focus on right now with a better prospective return. And many also offer higher dividend yields than the 3.3 percent payout on DB shares right now.
For traders, the May puts are an inexpensive bet to play a further drop in bank stocks in the coming months. The options can likely deliver mid-to-high double-digit returns, and potentially even higher on a further crisis.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.