Stock in Swiss bank UBS (NYSE: UBS) has been plummeting since Oct. 26, when it reported a stunning drop in investment-banking business. It rebounded briefly from that decline, made a lower high, and then collapsed. Now, it seems options traders are taking notice, and their actions show how nervous they may be.
OptionMonster’s tracking systems detected the purchase of 5,485 December 15 puts on Wednesday, mostly for 25 cents. Volume was nine times open interest in the strike. UBS ended the session up 0.38% to $15.83, but only after testing a four-month low of $15.67. The put-buying occurred after the stock probed that level, which was also below its 200-day moving average, a key support area. The Swiss bank has been falling since Oct. 26, when it reported a stunning drop in investment-banking business. It rebounded briefly from that decline, made a lower high, and then collapsed. The trade pushed total option volume in the name to 10 times greater than average, with puts accounting for more than 90% of the activity.
A put option can be used as a method to cut losses, or maintain profitability in an investment position. Likewise, a heavy volume of put trading can add downward pressure to a security, and lead to even greater speculation, similar to what we saw in the fourth quarter of 2008. Ultimately, this trade may be much ado about nothing – or, it may be a harbinger of times to come.
