At least one investor was emptying his stash of puts as State Street (NYSE: STT, Stock Forum) shares continued to surge yesterday morning due to reports that the Boston-based bank is healthier than expected.
Shares of the world’s largest money manager for institutions were trading around $36.90, up nearly 5% from Tuesday’s close. STT stock has doubled since it dipped to $17.61 on March 9.
Looking at the STT August 25 puts, which are out-of-the-money by more than 32%, we see that more than 15,300 contracts traded within the first hour of trading yesterday. Even more interesting is that about 15,200 of these puts were sold in the first 20 minutes of the trading day, according to ONN.tv’s Sidewinder report. The August 25 puts are were trading for around $1.70 versus current open interest of 15,383.
I highlighted STT about three weeks ago because buyers dominated the bulk of the August 25 put volume on April 15. When that article went to press, the puts were trading for $3.90 with the stock around $34.60. That pushed implied volatility of the puts up to 112. Since then, implied volatility for these puts has tumbled to 86.5. The current reading is even lower than earlier yesterday morning, when implied volatility clocked in at 97.4. Implicitly, you can tell that implied volatility is lower because the puts are down $2.30 with the stock up the same amount.
According to reports yesterday morning, some analysts believe STT is one of the banks facing stress tests today that may be in better shape than, for example, Bank of America (BAC) or Wells Fargo (WFC). Analysts also said Goldman Sachs Group (GS) and Bank of New York Mellon (BK) will fare better in the stress tests –so far today, GS and BK shares are up $1.40 and 72 cents, respectively.
Put selling such as what we saw yesterday on STT does not necessarily mean that investors should run right out and buy shares in the company. But it does demonstrate that the bearish sentiment we saw less than a month ago on STT might be dissipating as the put owner is selling his puts before they lose any more value.