Moderate bearishness on Zion Bancorp (NASDAQ: ZION)

Zion Bancorp (NASDAQ: ZION) earnings came in 38 cents better-than-expected Monday night (the company reported earnings of $1.26 a share), which sent the shares up more than 6% during Tuesday’s trading session to a closing price of $19.08. Despite the rally, at least one investor expressed moderate bearishness and bought a later-dated put spread.

During afternoon trading yesterday, two large blocks of the July 11-17 put spread, totaling more than 7,000 contracts in each strike, crossed the tape at a net debit of $1.40 per spread with the stock around $19.50. The July 11 puts were home to open interest of 1,000 contracts, while the July 17 puts had just 191 contracts of open interest, indicating investors traded these spreads to open. The investor bought the 17-strike puts for $1.80 per contract and sold the 11-strike options for 40 cents per contract.

The breakeven price on this put spread is $15.60 (the long strike minus the premium paid), meaning investors could make a maximum profit of $4.60 (the difference between the strike prices minus the premium paid) if ZION shares close below 11 at July options expiration. Investors incur a maximum loss of the net debit, or $1.40 per contract, if the shares close higher than $17 when the options expire.

Heavy put buying action does not mean investors should run out and sell their ZION shares. However, it is worth noting that after topping out at a new 52-week intraday high on Tuesday of $20.58, the shares reversed course along with the rest of the market. The stock is currently trading up 38% since hovering around $13 throughout December, and that spike could be the reason there was demand on Tuesday for some downside protection should the stock give back a sizable chunk of those gains.

For more on ZION:

Zions Shares Bounce Off Reduced Losses, Positive Analyst Comments

Market Loses Rally, Sparks Bearishness in Zion, Yamana