Shares of
New York Community Bank (NYCB) have been under pressure in recent months. One trader is betting that shares will see some further downside this year.
That’s based on the January 2025 $2.50 puts. With 312 days until expiration, 39,135 contracts traded compared to a prior open interest of 356, for a 110-fold rise in volume on the trade. The buyer of the puts paid $0.40 to make the bearish bet.
NYCB recently traded for about $3.60, so shares would need to drop by about $1.10, or about 30 percent, for the option to move in-the-money. The strike price is still a bit over the stock’s 52-week low of $1.70.
NYCB has lost over 60 percent of its value since the start of the year. The bank looked like the next potential collapse, until funding was announced last week.
Thanks to the recent drop, shares trade at about one-quarter of their book value, and at 6 times forward earnings. As long as the capital raise is enough to keep depositors from leaving the bank, the stock could recover from here.
Action to take: Shares are a speculation right now, even with the news of a capital infusion. Those interested in such a high-risk, high-return trade should make a small buy.
At present, NYCB yields about 5.8 percent, after slashing its dividend earlier this year.
For traders, the January 2025 puts are inexpensive enough that a few more down days for shares could lead to big returns. That makes them a worthwhile downside bet in today’s bullish market.
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 company mentioned in this article.