Shares of super-regional bank State Street (NYSE: STT, Stock Forum) are were trading around $34.60, up fractionally in yesterday's trading. Since its March 9 close of $17.61, the stock has nearly doubled. Clearly, the five-week bull run we've seen in the broader market has been especially good for STT. But yesterday we saw some put activity hit the tape, which could suggest investors are seeking some protection in case of a potential pullback in the STT shares.
Looking at the STT August 25 puts – out-of-the-money by nearly 30% - we see that more than 17,000 traded yesterday. The puts were trading for around $3.90 with the stock near $34.60. Current open interest in the puts prior to yesterday's trading action was just 1,554, according to the Sidewinder report at www.onn.tv.
What is interesting about this activity is that the bulk of the put volume has been dominated by buyers, which has served to push up the implied volatility of the puts. Tuesday night, the puts closed at 3.40 cents with stock at $34.53. That computed to an implied volatility of 103. Now, with the options at $3.90 and the stock at $34.60, that is an implied volatility of 112. Intuitively as well, you can tell that implied volatility is higher because the put price has increased 50 cents with the stock rising slightly.
Put buying such as what we are seeing today on State Street shares does not necessarily mean that investors should run right out and sell all of their shares in STT. It's just a group of traders that may have an intermediate-term bearish feeling on the stock. However, it is worth nothing that the option market saw plenty of activity like this prior to the last market swoon that started in early February and ran until the March 9 bottom.