Regional Banks in Trouble? These Options Traders Think So

Two years and counting after the mortgage-backed securities crisis first hit the fan, a number of obstacles remain for the troubled banking sector. The "too-big-to-fail" behemoths may have been rescued from the brink of disaster, but they've still got a heap of problems to contend with: the sluggish housing market, credit issues, not to mention the fallout from the recent foreclosure mess curveball.

Then you have the smaller institutions, struggling to keep their proverbial heads above water -- and as FDIC's ever-increasing "problem list" shows, many are failing to stay afloat.

The new financial reform law has created a whole new set of challenges for small banks. Now that they're unable to raise capital with trust-preferred securities, preferred for their favorable tax, accounting and credit treatment, smaller institutions may have difficulty meeting capital requirements. According to Rockdale Securities analyst Richard Bove, this could force them to sell at a discount to their book value.

Wondering which regional banks are expected to falter? That's a tough question, but for clues you can have a look at what the options traders are thinking about the sector.

We've compiled a list of six regional banks with bearish options market sentiment. All of these stocks have a large number of open put option contracts relative to call option contracts, suggesting that options traders expect these stocks to decline over the coming weeks.

Do you agree with these options traders, or do you see their pessimism as a contrarian indicator? (Click here to access free, interactive tools to analyze these ideas.)

Options data sourced from Schaeffer's. The list has been sorted by the put/call ratio.

Interactive Chart: Press Play to see how analyst ratings have changed for all the stocks mentioned above.

Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.