Banco Santander Options

| April 24, 2012 | 0 Comments

Financial InstitutionOptions in troubled Banco Santander (STD) have been experiencing large amounts of unusual trading activity over the last few days.

This company is scheduled to release Q1 earnings on April 26, 2012.

However, the way option traders are setting up for this event shows they don’t have many worries about STD collapsing further.

I mean, are any stocks hated right now more than Spanish banks?

But, easier lending conditions, aggressive short sellers, and upcoming earnings reports are providing traders with a chance to add some exposure while staying in tune with the downside risks.

Over the last week, our proprietary tracking system has picked up multiple put sales.

Don’t forget, put selling is a bullish trade.  An option trader sells put contracts and collects premium.  At expiration, if the stock is trading above the options strike price, the trader keeps all the premium.

When looking at STD, we’ve noticed two very large put trades.

With Banco Santander moving in a downward straight line down from $9.00 a share over the last few weeks, it seems to be finally finding a bottom around $6.35.

One option trader came in yesterday and sold 7,500 contracts of the STD June $7 strike puts for a price of $0.90.  So, if STD stock is trading above $7.00 a share by June expiration, this trader will net a 12% profit ($675,000).

A second trader came in late yesterday afternoon and made the same trade, but with a different strike and month.

He sold the STD September $7 strike puts.  And did this a whopping 12,000 times for an average price of $1.25.

This represents an 18% premium to the stock.  If this stock is trading above $7.00 a share by September’s expiration, this happy guy will profit $1,500,000.

I can’t ignore these trades… they’re great!

And let me tell you why.

If you’re not familiar with Banco Santander, they’re a Spanish bank with over $1.5 trillion in assets and close to 14,000 branches worldwide.

Its main focus is retail banking which accounts for about 75% of their entire operations.

In addition, the company has a wholesale bank with insurance and asset management ventures.  Around one third of profits come from Continental Europe, half of which originate in its native Spain, Brazil and U.K.

So, why after STD’s large decline in value are option traders looking up?

One catalyst may just be a thoroughly aggressive set of short sellers. Short positions in Spanish bank stocks have increased recently.

The interpretation for short interest is an increased chance of a short covering rally.  You see, the higher the short interest is in a stock, the more pronounced a rally could be given any good news.

More significantly, there are some early signs that lending conditions may be improving.

The ECB will release bank lending results tomorrow.  And the reason people are optimistic is that an already released survey of European banks suggests that lending conditions have loosened in recent months.

This is positive news for the banks.

It’s not clear yet whether Spain will be the sole beneficiary or all the European banks.

But, we’ll watch Germany’s and France’s PMI results next Monday for a hint.

And we’ll see how these traders fair in the months to come!

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.