Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

Banks are back in the news.

Regional banks are crashing due to deposit withdrawals. It appears the Fed is making a hash of the problems it created forcing banks to hold large amounts of US Treasury Bonds on their balance sheets.

There have only been a few bank failures. However, the big question traders are asking is if there will be more, and when. 

Does Fifth Third Bancorp (Ticker: FITB) have a volatility story to tell?

3 month chart of FITB with implied volatility below

Let’s find out.

Implied Volatility Is Still High in FITB

I want to discuss a couple of things about implied volatility (IV) and the current environment.  

Firstly, the realized volatility is still high by historical standards. That’s normal when a stock gets cut in half. Cutting in half is a real thing for a bank stock, since share equity is a big indicator of the bank’s financial health.

Secondly, implied volatility is still in a higher range after the initial stock crack and after declining some IV is back on the rise. As the future becomes more uncertain, the FDIC is not helping matters, and short term price action becomes choppy. In short, it’s hard to buy options and be right.

The answer is to sell the relatively higher IV in a controlled way via broken wing butterfly (BWBF) – a short volatility trade with neutral contracts. There’s risk in an extreme move, so this type of position is better for someone interested in buying the equity at a lower price. 

The IV pricing is still signaling uncertainty in the short term for FITB and most of the other regional banks.

If it all blows over, this would be the opportunity of the year.

To Your Trading Success,

AG