Credit Suisse plunge sends traders flocking to its U.S-listed options

© Reuters. FILE PHOTO: The logo of Swiss bank Credit Suisse is seen at its headquarters in Zurich, Switzerland March 24, 2021. REUTERS/Arnd Wiegmann

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Traders piled into U.S.-listed options on Credit Suisse at a record pace on Wednesday, as worries over the future of the embattled Swiss bank hammered its shares and added to concerns about instability in the financial sector.

Options volume on Credit Suisse jumped to 597,000 contracts, more than 27 times its daily average, and was set to hit a record 792,000 contracts by the end of the session, according to data from options analytics firm Trade Alert. That made Credit Suisse the fourth most heavily traded single-stock name in the U.S. options market on Wednesday.

The surge in trading followed a near 31% tumble in Credit Suisse shares on Wednesday after Saudi National Bank (SNB), which holds 9.88% of Credit Suisse, said it would not buy more shares on regulatory grounds.

Trading in Credit Suisse puts outnumbered that in its call options 1.7-to-1. Puts convey the right to sell shares at a fixed price in the future and are typically employed to express bearish sentiment, while calls offer the right to buy shares at a set price in the future and usually express bullish bias.

"There is so much activity going on that it would be hard to pick out one trend ... but there is more put buying than anything else," said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group.

Still, market participants said massive volume and various cross-currents made it difficult to get a read on which way the bulk of investors were betting.

"There's a lot of moving parts in the Credit Suisse trade right now with respect to a major credit event, European bank contagion, and the possibility of ECB intervention," said Steven Place, an independent options trader in Destin, Florida.

"That means you're going to see multiple kinds of bets in play," he said, noting that some traders may be trying to take advantage of the heightened volatility while others might even be looking to place bets on a quick rebound in the bank's battered shares.

U.S. listed options on other European banks Deutsche Bank (ETR:DBKGn) and UBS Group also surged, with much of the trading flow leaning toward defensive put contracts, Trade Alert data showed.

Credit Suisse' woes rekindled worries about the outlook for U.S. bank stocks, which have come under pressure in recent days following the failure of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY).

The S&P 500 Banks Index was down 4.2% on Wednesday and trading in the options on Financial Select Sector SPDR Fund showed a bearish bias, according to Trade Alert data.

For SPDR S&P regional banking ETF, the options trading action was a mix of investors taking profits on existing hedges while putting on new defensive positions, Susquehanna's Murphy said.