Santander: A Put Option for the Eurozone’s Woes

by John Jagerson and Wade Hansen | October 3, 2012 9:07 am

Recommendation: Buy Banco Santander (NYSE:SAN[1]) Nov. 8 Puts.

Demonstrations and strikes are back in Europe, and although conditions might not degrade to the same point that they did in late February and March … we don’t know what would stop them, either. If anything, it seems more likely that Spain and Greece are in for a tougher experience this time, as economic conditions have worsened.

Santander manages €1.383 billion for more than 102 million clients through its network of 15,000 offices throughout 16 countries in Europe, North America and South America. Though earlier this year it was trading around $4, the company has come back in price to pre-March levels and is way above where it was following its credit downgrade in May[2] thanks to the extraordinary promises of support from the ECB.

We think the news is trending poorly for SAN as the big finance ministers balk at the ECB’s goals and Spanish leaders continue to stubbornly refuse to ask for a bailout[3]. Moody’s estimates that Spanish banks will need anywhere from 70 billion 150 billion euros[4] to balance the books.

Ultimately, a rescue does seem likely, but in the meantime, we expect conditions to worsen and sellers in SAN to emerge.

We are buying the November options to give us a little extra time if needed. For more aggressive traders, the Nov. 7 puts are probably fine. Be careful about using a limit order for this trade, because the bid/ask spread is wide.

John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader[5], a trading service designed to help you make options profits by trading the news.

Endnotes:
  1. SAN: http://studio-5.financialcontent.com/investplace/quote?Symbol=SAN
  2. credit downgrade in May: http://www.telegraph.co.uk/finance/financialcrisis/9273658/Moodys-downgrades-Spanish-banks-statement-in-full.html
  3. refuse to ask for a bailout: http://www.businessweek.com/news/2012-10-02/aussie-weakens-to-lowest-in-3-weeks-against-dollar-on-rates-cut
  4. 70 billion 150 billion euros: http://www.businessweek.com/news/2012-10-01/spanish-banks-need-more-capital-than-tests-find-moody-s-says
  5. SlingShot Trader: http://slingshot-trader.investorplace.com/

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