Options Action: Betting Against Financials

Merrill Lynch is seeing heavy put activity among options traders Wednesday, as its stock plunges to lows not seen in more than a decade.

In late-day trading, MER is down more than 13 percent, falling below $10 for the first time since 1995.

The November options volume is already four times the recent averages and December is more than six times normal levels. November's activity includes 34,000 puts against just 2,800 calls, according to OptionMonster's proprietary systems, which track unusual options trading.

The bearish trading is taking place as many financial firms — including Bank of America, which is buying Merrill — are falling to multi-year lows. Citigroup and JP Morgan also plummeted, amid concerns of worsening credit problems after the federal government issued bleak economic data on consumer prices and housing starts.

It is the November 10 puts that are banging hard with buyers, with only two full days before these options expire. Some traders are opting for a high risk-reward play, with a low premium of $0.35.

The December 7.5 puts are also active and do carry some premium despite being well out of the money.


Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.