Bearish on BB&T (BBT) $23.42 +2.35

BB&T (BBT) shares rallied 11.2 percent Friday after the bank reported better-than-expected quarterly earnings. In addition, the tone of the earnings call remained upbeat as the CEO said some of the areas that saw the most deterioration in banking activity (D.C., Atlanta, Florida) are beginning to see stabilization. He believes there will be huge opportunities for big commercial banks as they come out of the economic downturn. The talk sparked a big gain in BBT and also gave a lift to regional banking names Friday. SPDR KBW Regional Bank ETF (KRE) gained 68 cents to $22.41.

In the options market, sentiment seemed less bullish. The top trades of the day in BBT hit in the May puts and appear to be large bearish put spreads. For example, in afternoon trading, 4500 May 22.5 puts traded for $1.27 while 4500 May 19 puts traded for 47 cents. Since volume exceeds open interest in both contracts, it appears to be a new position–where the strategist bought the 22.5s and sold the 19s for an 80-cent debit. If so, they have a potential $1.70 pay-off if the stock gives back recent gains and closes below $19.00. In addition, it appears that the spread was repeated twice (We will double check the open interest data Monday morning to confirm the spread was opened 10K times).

While it’s difficult to envisage entering a massive bearish put spread on BBT when the banks are rallying and the May contracts come off the board in less than four weeks, the action in this bank stock will be worth watching. Cleary, if this investor is buying $1 million in premium to bet against the bank, they probably have a reason for the pessimism. If so, it has important implications, not just for this one bank, but for the regional banking group as a whole.

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