Regional bank Valley National Bancorp (VLY) has seen shares slide 25 percent in the past few weeks amid fears in the banking sector. One trader sees further downside ahead for the stock.
That’s based on the September $5 puts. With 163 days until expiration, 9,954 contracts traded compared to a prior open interest of 265, for a 38-fold jump in volume on the trade. The buyer of the puts paid $0.48 to make the bearish bet.
Shares recently traded just over $9, so they would need to lose over $4, or nearly half their value, for the option to move in-the-money. It would also mean breaking under the recent 52-week low of $8.80.
Valley National now trades at a 25 percent discount to its book value, and shares are going for about 7 times forward earnings. If the banking crisis is over, the stock looks undervalued at current prices.
Action to take: Investors may want to make a small bet here. The drop in price has pushed the bank’s dividend up to 4.7 percent.
For traders, the short-term trend is down. Buying the September puts and flipping them for a quick mid-double-digit profit may be a good short-term bet. And it could be combined with buying shares following a drop to capture a longer-term rebound.
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.