Merchants Plunges 10.63%—Is This the Start of a Larger Correction?

Summary
• Merchants Bancorp (MBIN) trades at $31.33, down 10.63% from its previous close of $35.06
• Raymond James lowers price target to $40 from $41 amid earnings shortfall and elevated expenses
• Insider sales and hedge fund divergence amplify downward pressure
• Intraday range spans $31.19 to $33.75, signaling extreme volatility

Merchants Bancorp’s 10.63% selloff has sparked urgent investor scrutiny. The stock’s collapse follows Raymond James’ price target reduction, insider exits, and a Q2 earnings report marred by mortgage fraud-related losses. With technicals pointing to oversold conditions and key support levels under threat, traders are racing to decipher whether this is a short-term panic or a deeper bearish pivot.

Earnings Miss and Mortgage Fraud Fuel Analyst Recalibration
Merchants Bancorp’s 10.63% intraday drop stems from a confluence of factors: a Q2 earnings miss, elevated provisions for credit losses tied to multi-family property fraud, and Raymond James’ revised price target. The firm reported $0.60 EPS versus $1.12 expected, with net income plunging 50% year-over-year. Analysts highlighted elevated operating expenses from recent hiring and a contracting net interest margin. These fundamentals, combined with insider sales (e.g., Scott Evans’ $1.08 million exit) and mixed hedge fund activity, have triggered aggressive profit-taking.

Bearish Plays and ETFs for a Volatile Outlook
• RSI: 46.78 (oversold)
• MACD: 0.4549 (bullish signal), Signal Line: 0.5550 (bearish divergence), Histogram: -0.1001 (negative momentum)
• Bollinger Bands: Lower band at $33.60 (price near 5.5% below band)
• 200D MA: $37.04 (price 13% below)

MBIN’s technicals signal a bearish near-term bias, with RSI nearing oversold territory but key support levels at $33.60 and $34.92 likely to test resolve. The MicroSectors U.S. Big Banks 3X Leveraged ETNs (BNKU) and MAX S&P 500 4X Leveraged ETN (SPYU) offer amplified exposure to sector and market movements, but both are down -0.57% and -0.80%, reflecting broader caution.

Top Options Picks:
• MBIN20251121P35 (Put, $35 strike, Nov 21 expiration):
- Delta: -0.63 (high sensitivity to price drops)
- IV Ratio: 32.89% (moderate volatility)
- Gamma: 0.0633 (strong price responsiveness)
- Theta: -0.00226 (low time decay)
- Turnover: 400 (modest liquidity)
- Leverage Ratio: 7.99% (high reward potential)
- Payoff at 5% Down: $0.35 (max(0, 35 - 30.31))
- Why it stands out: High delta and gamma make it ideal for a sharp decline, with moderate IV ensuring cost efficiency.
• MBIN20260220P25 (Put, $25 strike, Feb 20 expiration):
- Delta: -0.1565 (moderate sensitivity)
- IV Ratio: 41.43% (elevated volatility)
- Gamma: 0.02399 (modest responsiveness)
- Theta: -0.004755 (low time decay)
- Turnover: 1,080 (strong liquidity)
- Leverage Ratio: 33.65% (high reward potential)
- Payoff at 5% Down: $5.60 (max(0, 25 - 30.31))
- Why it stands out: Long-dated option with high leverage and liquidity, suitable for a prolonged bearish scenario.

If $33.60 support breaks, consider MBIN20251121P35 for aggressive short-side exposure. For a cautious bearish play, MBIN20260220P25 offers time and liquidity to capitalize on a deeper correction.

Backtest Merchants Stock Performance
The MBIN ETF has historically shown resilience after experiencing a significant intraday plunge of at least -11%. The backtest data reveals that the 3-day win rate is 54.82%, the 10-day win rate is 54.29%, and the 30-day win rate is 57.97%, indicating that the ETF tends to rebound over short to medium terms. The maximum return observed was 6.39% over 30 days, suggesting that while there is some volatility, MBIN can generate positive returns in the period following a substantial downturn.

Act Now: Watch for Breakdown Below $33.60
Merchants Bancorp’s selloff reflects a convergence of analyst caution, insider exits, and mixed institutional sentiment. While the 52-week low at $27.25 looms, key support levels at $33.60 and $34.92 will determine whether this is a short-term pullback or a deeper bearish shift. Sector leader JPMorgan Chase (JPM), down -0.63%, highlights divergent banking sector dynamics. Investors should prioritize liquidity and leverage ratios in options plays, with MBIN20251121P35 as a high-conviction trade. Watch for a breakdown below $33.60 to confirm a bearish pivot—aggressive positioning may follow.