Regional bank KeyCorp (KEY) has traded flat over the past year, with shares recently sliding over 20% from their 52-week highs. One trader sees further downside in the weeks ahead.
That’s based on the May $12 puts. With 29 days until expiration, 32,986 contracts traded, a massive 244-fold increase in open interest from the prior volume of 135 contracts. The buyer of the puts paid $0.18 to make the bearish bet.
KeyCorp recently traded for about $14, so shares would need to decline by $2, or 15%, for the option to move in-the-money. The strike price of the option is just under Keycorp’s 52-week low of $12.73.
The bank has struggled over the past year, with revenues down over 40%. Regional banks have been impacted by high interest rates, which have kept a damper on loan demand.
However, KeyCorp trades right at its book value, and shares trade for about 9 times forward earnings estimates. That suggests shares could be a reasonable value trade here.
Action to take: Investors may want to consider building a stake here, and using any market weakness to add to it. Banks tend to fare well when interest rates decline, which still looks likely in the back half of the year.
At current prices, Keycorp also pays a 5.8% dividend.
For traders, the May $12 puts play to very short-term weakness in shares and the current market fears. It may be a worthwhile speculation for the high double-digit return potential. Traders should take a quick profit on the trade.
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.
