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Demand For Puts Pops At Regions Financial As Shares Slide Lower

 November 18, 2010 04:38 PM

Regions Financial Corp. (RF) – Bears are piling into put options on Regions Financial Corp. today after Fitch Ratings cut Alabama's biggest lender by two levels to –BBB, citing concerns the firm may post additional losses. Regions' credit rating was also downgraded two notches to Ba3 from Ba1 at Moody's yesterday. Shares have been hammered lower over the past four weeks, and today declined as much as 7.22% to touch an intraday- and new 52-week low of $5.14. Today's low of $5.14 marks a 46.5% decline since October 21, 2010, when shares touched an intraday high of $7.53. Investors expecting shares to extend losses over the next several months purchased large numbers of put options on the stock. Bearish players picked up at least 9,000 puts at the December $5.0 strike for an average premium of $0.28 each and purchased approximately 10,000 puts at the lower December $4.0 strike at an average premium of $0.20 apiece. Lower-strike put buyers are positioned to profit should Regions' shares slide another 26% below today's intraday low point of $5.14 to breach the effective breakeven point on the downside at $3.80 by expiration day in December. Pessimism spread to the January 2011 $4.0 strike where another 3,800 put options were coveted at an average premium of $0.20 a-pop. The surge in demand for put options coupled with growing uncertainty regarding the fate of RF's shares going forward helped lift the stock's overall reading of options implied volatility 27.4% to 90.77% by 3:50 pm in New York.

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Yahoo!, Inc. (YHOO) – Shares in Yahoo! are up 5.35% to $17.01 as of 2:40 pm in New York, but earlier rallied as much as 6.315% to hit an intraday high of $17.17. Call options on the stock are flying off the shelves this afternoon with investors exchanging more than 8.4 calls on the stock for each single put option in play thus far in the session. Calls at the December $19 and $21 strikes are by far the most heavily trafficked. The majority of the volume, some 40,950 calls at the Dec. $19 strike and about 34,490 calls at the Dec. $21 strike, was generated in one fell swoop by one bullish player establishing a debit call spread. It looks like the initial print of the spread involved the purchase of 21,000 calls at the Dec. $19 strike at a premium of $0.36 each, marked against the sale of the same number of calls up at the Dec. $21 strike for a premium of $0.12 apiece. The net cost of the spread amounts to $0.24 per contract and prepares the trader to make money should shares in Yahoo! surge 13.1% over the current price of $17.01 to trade above the effective breakeven price of $19.24 ahead of expiration day next month. Maximum potential profits of $1.76 per contract pad the investor's wallet if the price of the underlying stock jumps 23.45% to exceed $21.00 by expiration in December. Options implied volatility on the search engine is up 21% at 44.71% in late afternoon trading.

O'Reilly Automotive, Inc. (ORLY) – The specialty retailer of automotive aftermarket parts, tools, supplies and accessories attracted bullish options traders during the session. Shares in O'Reilly rose as much as 2.00% earlier today to hit an intraday high of $60.00 after analysts at Nomura initiated the stock as ‘neutral' with a share price target of $65.00. Investors hoping the auto parts seller extends gains throughout the rest of the trading week scooped up more than 2,150 calls at the November $60 strike for an average premium of $0.13 apiece. Call buyers make money if shares in O'Reilly Automotive exceed the average breakeven price of $60.13 by the time the contracts expire tomorrow. Approximately 3,200 calls changed hands at the November $60 strike, which is more than 5.75 times greater than the 555 lots representing previously existing open interest in calls at that strike.

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