Regional banks have been crumbling along with the rest of the market, and the bears aren't going anywhere.
optionMONSTER's Depth Charge tracking system detected a surge of put volume in the SPDR S&P Regional Banking Fund, which holds positions in a wide range of small lenders. Two especially noteworthy transactions stood out.
First, an even 10,000 November 37 puts were bought for an average premium of $0.975 and an equal number of October 38 puts was sold for $0.96. Volume was below open interest in the 38s, which indicates that an existing position was rolled down in price and out in time.
About 40,000 November 32s were bought later in the afternoon, most of which priced for $0.25. There was no open interest in those.
Puts lock in the level where investors can exit the KRE no matter how far it may decline. They can be used to hedge long positions or to speculate on a drop.
Given their low cost, they can also generate significant leverage if the fund moves in the right direction. (See our Education section)
The KFE fell 2.44 percent to $36.83 yesterday, its worst close in almost a year. The portfolio has lost 8 percent of its value in the last three months, compared with a 2 percent drop for the broader S&P 500. The largest holdings include Texas Capital, First Republic and PNC Financial.
Total option volume was 14 times greater than average in the session, with puts outnumbering calls by a bearish 44 to 1.
More From optionMONSTER