CVBF – CVB Financial Corp. – News overnight that the west-coast mortgage lender received a subpoena from the SEC asking about how it handles troubled loans has sent the share price down more than 20% on Tuesday to $8.05. Its options have been relatively busy also but the put action option smacks of a contrarian play in a hope that the news is fully discounted or that an investor suspects no wrongdoing by the bank. Investors appear to have written put options expiring in both September and December expirations using the $7.50 strike price implying rising losses on account of a further 6.8% share price decline. Even then the writers are bringing on board elevated premiums courtesy of a 35% jump in options implied volatility. The cost of insuring against a long stock position from a decline beneath $7.50 before year end has risen to $1.00 today implying a break-even point of $6.50 for a buyer. Today’s selling pressure assumes that the bad news will likely fade sooner rather than later.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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