Greek Debt and Mortgage Fraud Keep Deutsche Bank In A Downtrend

(This is an excerpt from an article I published on Seeking Alpha. Click here to read the entire piece.)

It has been a while since I last looked at Deutsche Bank (DB). At that time, I was focused on a pairs trade strategy versus Goldman Sachs (GS). So when I noted last week that GS is trading at two-year lows versus the S&P 500, DB should have immediately come to mind. Instead, it was Friday’s rumors that Greece was considering exiting the euro zone that brought DB back to my radar…

…May 60 puts traded 4548 contracts versus 736 open interest. May 57.5 puts traded 1047 contracts versus 927 open interest. May 55 puts traded 2781 contracts versus 2813 open interest. For a time after the rumors began flying, the May 55 puts were still trading with $.05 as the best bid versus $0.35 ask. The stock closed down 2.2% on the NYSE at 2.5x average daily volume of 1.05M shares. So, clearly, there was concern about the rumors and the impact to DB, but it was not panic. Indeed, Barron’s reports that the implied volatility on DB options only increased to 34% from a historical average of 29%. The May 60 puts have an implied volatility of 42%. Regardless, I hopped aboard the May 60 puts and did not get filled on a “low ball” offer for the May 55 puts.

Deutsche Bank peaked in 2009 and has been trending down ever since
Deutsche Bank peaked in 2009 and has been trending down ever since

*Chart created using TeleChart:

Friday’s decline confirmed a continuation of the downtrend shown above, but it was Tuesday’s announcement that the U.S. federal government had sued DB for alleged mortgage fraud that caused DB to just barely miss breaking its almost two-year downtrend…

(Click here to read the complete article on Seeking Alpha).

Be careful out there!

Full disclosure: long DB puts

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