HSBC fell in overnight trading after seeing extremely bearish put activity similar to the type of options action that preceded the fall of Bear Stearns and Lehman Brothers.
The United Kingdom's largest bank, which was trading over $80 in September before the current financial crisis, has been steadily losing ground ever since and is now approaching multi-year lows not seen since 9/11. Its shares finished the regular session yesterday down 2 percent to $46.70 and lost another 1 percent in after-hours trading last night.
The options on the ADR for HSBC average 18,000 contracts per day, but more than 172,000 puts changed hands as of late yesterday. The trading tracked by OptionMonster's systems is unmistakenly bearish:
--87,000 March 45 puts traded in blocks as large as 75,000 contracts for up to $4.60.
--51,000 March 50 puts traded, one of which was spread against those March 45 puts in a block of 50,000.
--13,800 March 40 puts changed hands, as did 12,700 March 35 puts.
The extraordinary activity is reminiscent of the unusual trading that expedited the downfall of Bear Stearns and then Lehman. In both those cases, strong put buying accelerated as time passed and was eventually marked by contracts that were way out of the money.
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Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com.