All the trade war and tariff talk aside, it’s been a crazy week in the markets. 

The week started relatively benign, with the S&P 500 down 0.2%. Given the rollercoaster ride we’ve been on recently, most would probably take this kind of market. Tuesday got a little more volatile, and the index fell 1.6%. 

Things got interesting on Wednesday around 1:30 in New York. The president put a 90-day pause on the reciprocal tariffs to allow for country-by-country tariff and trade negotiations. The markets went nuts, sending the index up 9.5%, one of its most significant single-day moves since World War II. 

I’m not convinced that the worst is over. So, I’m not surprised that the index lost 3.5% yesterday as reality began to sink in for investors: this will be a long year of back-and-forth discussions that could result in nothing being solved except the U.S. completely losing the trust of all its major trading partners.   

The market volatility exhibited by the CBOE Volatility Index ($VIX) should remain elevated in the near term as investors worry about the implications of a trade war that is currently focused almost exclusively on China. 

No one wins when the world’s two biggest economies go head-to-head in a slugfest of heavyweights. While the VIX isn’t at an all-time high, it is flirting with levels last seen in March 2020. 

Yesterday, the total options volume was 64.8 million, 12.9 million higher than its 30-day average. Puts outperformed calls, 51% to 49%. The top 10 stocks accounted for 58% of the volume. 

As we enter bank earnings season--JPMorgan Chase (JPM) reported this morning, and they beat analyst estimates--bankers such as Jamie Dimon are rightly concerned about the economy’s future direction. 

Regional bank KeyCorp (KEY) reports Q1 2025 results next Thursday before the markets open. Analysts expect it to report healthy EPS growth in the quarter. However, it’s not so much the numbers as it will be what CEO Chris Gorman has to say about the current U.S. economy.

In Thursday’s unusual options activity--defined as options expiring in seven days or more with Vol/OI ratios of 1.24 or higher--KEY stock had the two highest options by Vol/OI. Further, its overall options volume screams increased volatility heading into April 17 earnings. Here’s why. 

Have an excellent weekend.

The Options in Question

KeyCorp had one call and one put yesterday. That was plenty, as the former’s Vol/OI ratio was 151.20, while the latter’s was even higher at 249.27. 

Yesterday's unusually active options were 1,274, with 722 calls and 552 calls, which is more bullish than the overall options volume indicates. 

The options strategy that jumps out is a long strangle. The long strangle is where you buy a call option at one strike price and a put option at a lower strike price. You are anticipating increased volatility in the bank’s share price. However, you’re not sure which direction.

You’ll notice that both options expire next Friday after KeyCorp reports its first-quarter earnings. JPM stock is down over 3% in the pre-market. That does not bode well for KEY, which is already down 15% in 2025 relative to JPMorgan. 

An EPS miss would most certainly send its shares even lower than they already are--KEY is up just 14.4% over the past five years compared to 121.01% for Jamie Dimon’s bank. 

It’s a Low-Risk Bet

Based on the two ask prices, the net debit is $0.82, 6.0% of yesterday’s closing price. Here are the long strangles listed for the April 17 $140 call.

The net debits of the four above range from $0.93 to $1.25, while the profit probability on these bets ranges from a high of 38.9% for the $13.50 put to a low of 30.1% for the $12.00. 

While the $11.50 put isn’t on there, the net debit is $0.82, as I mentioned earlier, and although I’m not a mathematician and won’t try to calculate the profit probability, my guess is it’s around 27.5%. 

Here’s the $12 put for comparison.

To profit, the share price at expiration has to be above $14.82 [$14.00 call strike price + $0.82 net debit] or below $10.68 [$11.50 put strike price - $0.82 net debit]. 

The last time KEY traded above $14.82 was November 2024, while the last time it traded below $10.68 was October 2023. It would seem you’ve got a better chance of profiting on the upside than the downside. 

However, the downside could come into play if something negative happens in the next week to crush the bulls. 

What the Whale Was Thinking

Of the 33,868 volume for the $14 call expiring next Friday, four trades accounted for 97% of the volume. They all happened at 2:17 p.m. 

Of the 33,153 volume for the $11.50 put expiring next Friday, four trades accounted for 99% of the volume. They all happened at 2:17 p.m.

A whale out there invested nearly $2.5 million in a long strangle, confident that the stock would move significantly one way or the other. 

In KeyCorp’s four most recent quarterly reports, it has delivered earnings surprises of -11.55% (Q1 2024), 3.49% (Q2 2024), -309.38% (Q3 2024), and 16.71% (Q4 2024). 

The largest positive surprise was in the fourth quarter. It reported its earnings before the markets opened on Jan. 21. Its shares lost 3.6% on the day. The largest negative surprise was in the third quarter. It reported these results on Oct. 17 before the markets opened. Its shares lost 2.5% on the day. 

It’s unlikely that any earnings result will move the stock enough. However, anything's possible, with volatility expected to be high over the next week. 

CEO Chris Gorman appeared on CNBC’s Mad Money with Jim Cramer yesterday. He said that many of KeyCorp’s customers will reshore some of their production which should lead to more activity in the U.S. That would be good for regional banks like KeyCorp. 

While $2.5 million is a lot for most retail investors, it's a drop in the bucket for the institutional or high-net-worth investor who placed these trades. 

It’s a good, low-risk, high-reward bet on KeyCorp. It also suggests volatility isn’t going anywhere.       

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.