Fortis Options Soar on Concern Shares May Drop More

By Gareth Gore

Sept. 26 (Bloomberg) -- Investors in options increased bets that shares of Fortis will extend declines even after the Belgian-Dutch bank said its solvency is ``solid'' and that the current stock price doesn't reflect the bank's value.

Three-month implied volatility, which gauges the price of options expiring in December, rallied 38 percent to as high as 122.79, a record, and traded at 119.3 as of 12:34 p.m. in Amsterdam as investors bought insurance against a further drop in the lender's shares.

``Investors are very nervous about the company at the moment and there's a feeling it might be in trouble,'' said Xavier Martin, an options trader at Citigroup Inc. in London. ``Implied volatility can easily go higher.''

Trading in the put options, which are used to bet on a slide in shares, outnumbered call options, a wager that an equity will rise, by more than 70 percent today. The most active Fortis options contracts were 4.80-euro puts expiring in March, according to Bloomberg data.

American-style puts such as those traded on Fortis give the buyer the right to sell shares at a pre-agreed price by a specific date. They may also be used to protect against a decline in a stock.

At a current price of 95 cents, the 4.80 euro put contracts will be profitable to the buyer only if Fortis shares decline to below 3.85 euros, according to Bloomberg data. That is 41 percent lower than yesterday's closing price in Amsterdam.

`Flabbergasted'

Chief Executive Officer Herman Verwilst, speaking at a press briefing in Brussels today, said he's ``flabbergasted'' by the stock declines and that the bank's market value doesn't reflect how much its businesses are worth. Solvency is ``solid'' and ``well above'' the regulatory minimum, he said.

Fortis shares have dropped on speculation the company will struggle to raise the 8.3 billion euros ($12.2 billion) it's seeking to bolster capital, and may even need more funds as financial markets deteriorate. Verwilst said Sept. 20 the firm may sell more assets than anticipated as it becomes harder to raise money.

The shares were trading at 5.782 euros today in Amsterdam, 12 percent lower than yesterday's close.

To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net