US regional bank stocks draw bearish options bets despite bounce

By Laura Matthews and Saqib Iqbal Ahmed

NEW YORK (Reuters) – The cost of insuring against further losses in regional U.S. bank stocks stood near a one-month high in options markets on Wednesday, even as shares of lenders saw a reprieve from their recent sell-off.

The 30-day implied volatility on the SPDR S&P Regional Banking (NYSE:) ETF, which measures traders’ expectation for near-term price swings, stood at 46 on Wednesday, just shy of the one-month high of 47 hit on Tuesday, signaling little letup in investor fears despite JPMorgan Chase & Co (NYSE:)’s weekend rescue of First Republic Bank (NYSE:).

Skew on the SPDR S&P Regional Banking ETF – a gauge of relative demand for puts versus calls – remained elevated, hovering near the highest level since the COVID-19 market slump, data from OptionMetrics showed. Puts convey the right to sell shares at a fixed price in the future, while calls offer the right to buy shares at a set price.

“I definitely don’t think we are out of the woods,” said Garrett DeSimone, head of quantitative research at OptionMetrics. “The market will start turning over stones to see which other regional banks are exposed.”

(Graphic: Lingering stress –

Shares of midsized U.S. lenders were broadly higher Wednesday following a two-day tumble, after the failure of a third major regional bank in two months fanned investor anxiety over the category. The SPDR S&P Regional Banking ETF rose about 1.9% to 39.64 in afternoon trade, though it is down 33% on the year and fell on Monday and Tuesday.

“The fact that you didn’t see the follow-through from some of these other regional banks, with what would appear to be such great news, really didn’t inspire a lot of confidence in some of these regional banks,” said Seth Hickle, a derivatives portfolio manager at Innovative Portfolios, referring to JPMorgan’s rescue of First Republic.

Adding to the concern around regional banks is another 25 basis point rate increase the Federal Reserve delivered on Wednesday, piling more pressure on lenders to pay higher rates to depositors as they seek to keep customers from parking their cash elsewhere.

“The problem with regionals are going to be rising interest rates,” said Matt Amberson, principal at options analytics firm ORATS. “There are so many good places to get a return now.”

(This story has been refiled to correct date in the dateline)