Unusual Options Activity: UBS Group AG (UBS)

Shares of megabank UBS Group AG (UBS) have been trending higher the past year, with a few sizeable drops during periods of market fears. One trader sees the possibility for another such drop in the next few months.

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  • That’s based on the February $12.50 puts. With 143 days left on the trade, over 6,025 contracts traded, a 54-fold jump in volume from the prior open interest of 112. The buyer of the puts paid $0.25 to make the trade.

    With shares currently in the high $15 range, it would take a drop of over 22 percent for the option to move in-the-money. Such a move is big, but during a market crisis, any bank stock tends to face a big drop.

    The Swiss bank looks reasonably valued here, trading at less than 9 times forward earnings and right around book value. And even with recent volatility, shares are up 43 percent in the past year.

    Action to take: While the Evergrande implosion in China led to a slight drop in shares lately, the possibility of a US debt default is rising in the coming weeks. That points to a potential for some more market volatility, including a few large down days in the weeks ahead.

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  • That makes these puts a reasonable hedge against the rest of the overall market in the coming weeks. They’re inexpensive, and can likely be closed out as soon as any debt-ceiling deal is reached, well before they expire.


    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.