Shares of super-regional bank PNC Financial Services (NYSE: PNC, Stock Forum) were down more than 7% to $18.51 Friday, after dropping as low as $16.20. The slide in the stock spurred some put buying, which suggests more downside slides, or at least more volatility, will be in the offing for PNC.
Looking at the PNC April 10 puts, we see that more than 19,000 traded during the first four hours of trading on Friday. The puts were trading for around $1.75 with the stock near $16.80. As of Friday, open interest in these puts was just 141, according to the Sidewinder report at www.onn.tv.
What is interesting about this activity is that over half of the volume was dominated by buyers, which served to push up implied volatility of the puts even as a seller came in to sell 8,500 after 10,000 had been bought. Thursday night, the puts closed at 85 cents with stock at $20. That computed to an implied volatility of 205. With the options at $1.75 and the stock at $16.80, that is an implied volatility of 247.
It is worth noting that this drop in PNC came even as the shares did not have any company-specific news. Rather, the stock was down along with shares of other banks, both large and small. But PNC’s slide far outpaced any of the others mid day. It is worth remembering that PNC purchased/saved National City (NCC) back in October, and closed the deal January 2 of this year. As we are all too aware, we have seen instances where the acquired company has destroyed the equity value of its buyer, like a virus killing its host. Wells Fargo (WFC) bought Wachovia (WB), and BankAmerica (BAC) bought Merrill (MER).
Put buying like this does not mean that investors should run right out and sell all of their shares in PNC. However, it is worth nothing that the option market has seen plenty of activity like this where the put buying did foretell an oncoming Tsunami. Heavy downside put buying occurred before big stock dives in General Electric (GE), Citigroup (C), and Bank of America (BAC), just to name a few. Maybe this put buyer is thinking that PNC will meet a similar fate.