Money center bank U.S. Bancorp (USB) has seen shares drop about 25 percent in the past year. One trader sees a further drop for shares in the coming months.
That’s based on the June 16 $30 puts. With 94 days until expiration, 5,377 contracts traded compared to a prior open interest of 100, for a 54-fold rise in volume on the trade. The buyer of the puts paid $0.53 to make the bearish bet.
The bank recently traded for just over $37, so it would need to lose another 20 percent, or $7, for the option to move in-the-money. That’s also well under USB’s 52-week low of $38.39.
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USB has seen a slowdown in the past year as interest rates have risen. Revenues are off 9 percent, and earnings have slid by 44 percent. While the bank sports a solid 26 percent profit margin, declining revenues are the main driver lower for shares
Action to take: Given the weakness in the banking sector underway, shares are likely to trend lower for some time. There will be some strong moves higher, and overall the stock will be volatile. But traders interested in big banks should look to buy closer to a retest of their 52-week lows now.
For traders, the June $30 puts are an inexpensive way to profit from continued weakness in bank stocks in the coming weeks. Traders can likely nab high-double-digit returns.
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 of the companies mentioned in this article.