Unusual Option Activity: KeyCorp (KEY)

Regional bank KeyCorp (KEY) has lost 30 percent over the past year amid rising interest rates and investor fear over smaller banks. One trader sees further downside in the coming weeks.

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  • That’s based on the March 1 $13 puts. With 22 days until expiration, 7,590 contracts traded compared to a prior open interest of 121, for a 63-fold rise in volume on the trade. The buyer of the puts paid $0.29 to make the bearish bet.

    KeyCorp shares recently traded for about $14. Shares would need to lose $1.00, or just over 7 percent, for the option to move in-the-money.

    The $13 strike price is well over the stock’s 52-week low of $8.53, set nearly a year ago.

    KeyCorp has been struggling, with earnings down 83 percent over the last year, and revenues are off by 12 percent.

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  • Shares also trade at just over their book value, indicating that the bank is fairly valued based on its book of loans.

    Action to take: Shares have started to move to the downside in recent sessions. They’re likely to further decline if other bank earnings look bad in the coming weeks. KeyCorp doesn’t report next until April. For now, wait for a cheaper entry price.

    For traders, the March 1 $13 puts are an inexpensive hedge against further selling in the banking sector in the coming weeks.

    The options may expire worthless or see triple-digit returns. Traders may want to take profits on high-double-digit returns or better.

     

    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.

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