Are Option Traders Seeing a Rebound in Banking Stocks?

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  • Huntington Bancshares Inc (HBAN) is a Columbus, OH regional back that operates branches primarily located in the central U.S. The climate for banks has been difficult as the yield curve had inverted, and net interest margins shrunk. However, with the lowering of the Fed Funds rate to zero, it has steepened the yield curve and is providing opportunity to make more money on loans.

    There is still a lot of uncertainty regarding the overall health of the economy once the full impact of COVID-19 is understood, but that doesn’t mean there can’t be a rather violent snap-back in the near term. Some analysts have questioned their exposure to commercial credit but lauded their improved credit quality in other areas. On Wednesday, they also announced measures that they will be taking to help those suffering economic injury from the pandemic.

    In the midst of all of this, Option traders began accumulating a significant amount of OTM calls on HBAN on the 15 MAY 20 $8 call option. The option activity was over three times the average and the call activity were over 5 times the average. Of the over 9000 contracts traded, over 50% of them were traded at the ask price or higher. This reflects call option buying.

    Action to Take: The near-term target is $11, which is the 61.8% retracement of the recent down-move from March 3, 2020 to Thursday.

    If you’re looking for leverage, the 15 May 20 $8 call option is going for around $1.25. If the stock reaches $11 by expiration, it provides a potential gain of $1.75 or a 140% ROR. Consider closing half of the position if it makes a 100% gain before expiration.

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