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Traders and investors hastily flocked and piled into US-listed options on Credit Suisse at a record pace on Wednesday, as worries over the future of the beleaguered Swiss bank severely impacted its shares and added to existing concerns about instability in the banking sector.
The volume of options on Credit Suisse increased to 597,000 contracts, more than 27 times its daily average, and was expected to reach a record 792,000 contracts by the end of the session. As a result, Credit Suisse was the fourth-most actively traded single-stock name on Wednesday in the US options market.
After Saudi National Bank (SNB) (1180.SE), which owns 9.88% of Credit Suisse (CSGN.S) and said on Wednesday that it would not be buying additional shares for regulatory reasons, the price of Credit Suisse shares fell by about 31%, prompting an upsurge in trade.
Put option trading at Credit Suisse was 1.7 times higher than call option trading. Puts transmit the right to sell shares at a predetermined price in the future and are used to convey pessimism, whereas calls offer the right to acquire shares at a defined price in the future and typically show positive opinion.
There is so much activity that it would be difficult to identify just one trend, but put purchasing is dominating everything else. Yet, market insiders claimed it was challenging to gauge which direction the majority of investors were wagering due to the high volume and numerous cross-currents.
There are several moving components in the Credit Suisse trade at the moment due to a significant credit event, contagion among European banks, and the potential for ECB action. As a result, a variety of bets will be in play for investors. Some traders would be aiming to profit from the increased volatility, while others might even gamble on the wounded bank’s shares making a speedy comeback.
The trading volume for US-listed options on other European banks, including Deutsche Bank and UBS Group, increased as well, with a large portion of it favouring protective put contracts. Concerns about the future of US bank equities, which have been under pressure recently due to the failure of Silicon Valley Bank and Signature Bank, were sparked by Credit Suisse’s problems.
On Wednesday, the S&P 500 Banks Index (.SPXBK) fell 4.2%, while the options trading on the Financial Select Sector SPDR Fund (XLF.P) displayed a bearish bias. Investors taking profits on current hedges while assuming fresh defensive positions made up the majority of the options trading activity for SPDR S&P regional banking ETF (KRE.P).
