Rolling out bearishness in Comerica (CMA)


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Comerica Inc. (NYSE: CMA ) did not announce any news on Tuesday to account for the underperformance in the stock compared to the broad-market. But given that the banking sector as a whole is down more than the rest of the market, the CMA move seems to make sense. Options action in the puts today suggested that at least one investor seems to be betting that downside could continue through August expiration.

At around 1:08 p.m. EST, 7,500 of the August 37.50-32.50 put spreads traded. The 37.50 puts traded for $2.50 per contract and the 32.50 puts traded for 80 cents per contract. The investor purchased this spread and paid a net premium of $1.70 per spread, or $1.27 million in total. But the investor did another trade to fund the put spread purchase. At the same time, we see that 5,000 of the July 40 puts were sold for $3.

The open interest of the August 37.50 puts is 180 contracts, while the August 32.50 puts have an open interest of just one contract. This suggests that the August spread was bought to open. The open interest of the July 40 puts is more than 10,000 contracts. So what we might have happening here is an investor is selling to close the July 40 puts, and then buying the August put spread. This would maintain some bearish exposure, but not nearly as much because the August put spread has a delta of less than 30, compared to 80 for the July puts.

One final thing to consider with this trade is that CMA has confirmed that they will report earnings before the open on July 21. That date will be after July options expire. So by selling the July puts and buying the August spread, the investor has sold the options that expire prior to expiration, and have a new August position that will be around to benefit from the catalyst of the earnings event.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Options

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Jud Pyle

Jud Pyle

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