Big Printin’ Deutsche Bank (DB) & Goldman Sachs (GS)

by Dan September 9, 2016 3:34 pm • Big Printin'

A combination of the ECB not as dovish as some would expect yesterday, and increased expectations for a U.S. Fed rate increase in September have stocks and bonds falling today, while the U.S. dollar and rates are rallying.  You know the rest, commodities and yield proxies like telcos, reits and utilities getting smacked. One sector over the last 24 hours that has shown decent relative strength is European Bank stocks, with the EuroStoxx Bank Index (SX7E) outperforming the EuroStoxx 50 (SX5E) off of the post ECB presser lows by 2%:

From Bloomberg
From Bloomberg

The poster-child of the perceived European banking crisis, Deutsche Bank (DB) is up 5% from yesterday’s lows, and the adr here in the states saw some rare call activity. Shortly after the open there appeared to be an opening buyer of October 16 calls, with 20,000 trading in blocks starting at 9:40am, with the largest being 9,000 bought for 60 cents, this vs 5,200 contracts of open interest in the strike.  The use of the term rare is not an overstatement as there is currently 365,000 puts of open interest to 136,000 calls.  The choice of the Oct 21st regular strike is curious as it will not catch their Q3 earnings already scheduled for Oct 27th, but will catch the ECB’s next meeting on Oct 20th.

Today’s relative out-performance is nothing short of impressive as the stock is doing its best to establish a new range above its late June Brexit breakdown level:

DB 1yr chart from Bloomberg
DB 1yr chart from Bloomberg

And now to Goldman Sachs (GS). This stock is up 22% from its late June post Brexit lows that also marked a new 52 week low.  With the stock trading at $170, it is at the exact mid-point of the 1 year range between $140 and $200, also an important technical support/resistance level where the stock broke-down from in Jan and was rejected from in April:

GS 1yr chart from Bloomberg
GS 1yr chart from Bloomberg

When GS was trading $169.70, just before 1pm, there was an opening buyer of 10,000 Jan17 200 calls, paying 60 cents. These calls break-even at $200.60, up 18% from the trading level, and just above the 52 week highs.  For those who think this may be an interesting bullish bet, I’ll say not so fast as the options market is placing less than a 7% chance that these calls are in the money on Jan17 expiration.

I”ll offer my normal disclaimer when detailing unusual options activity. Without intimate knowledge of the trader, and specifically the trader’s intent, and what the options position may be against, it’s difficult to glean anything aside from sentiment.