HSBC Holdings (HBC, $33.84, down $6.11) is getting crushed again this morning on more concerns about the European banks. If you thought it was bad over here, it’s worse in Europe. There are a slew of banks that are under serious selling pressure and the fall is stunning.

Royal Bank of Scotland (RBS, $3.10, down $7.75) shares are down more than 70% today after reports surfaced that the U.K. government will raise its stake in the bank and that it expects to post a massive loss for 2008. This stock does not trade options and is an ADR (American Depository Receipt).

Lloyds Banking Group (LYG, $2.59, down $3.61) is down nearly 60%…

The bigger story here, though, is if you are still in any of the HSBC Holdings put option trades. I had mentioned that the February and March put options hit their stops on Friday and sometimes option traders close half the trade when it doubles and let the rest ride. I didn’t mention this as another way to play the trade but I have in the past. It is kind of like a double-edged sword because it can cut both ways but obviously the puts are doing very well today.

Another way we could have played it would have been to close out the March 45, 40, and 35’s completely, then let the 25’s run.

The February 45 puts (HBCNI, $11.70, up $5.30) were profiled last Tuesday at $3. At $12, it’s a 300% return. Our stop was at $6.50 and these calls closed at $6.40 on Friday. Sometimes, it’s just the nature of the beast.

The March 45 puts (HBCOI, $12.60, up $4.35) are up another 50% from an entry price of $4.75 and stops were set at $8. The puts closed at $8.25 which was higher than our stop but the stop was still triggered.

The March 40 puts (HBCOH, $8.85, up $3.55) are up an additional 65% from an entry price of $2.75. Stops were set at $5 and the previous close was $5.30.

The March 35 puts (HBCOG, $5.50, up $2.00) are up 60% from an entry price of $1.70. I had set a stop of $3 for them and as luck would have it, that was hit as well.

The March 25 puts (HBCOE, $1.85, up $0.70) were at $1 on Tuesday and although they haven’t performed as well as the other aforementioned options, they could if HSBC continues its plunge. If you made some cash in the higher strike prices then you could roll some money into the 25’s at these levels but I would set stops firmly at $1.

You don’t want to get caught in chasing options higher which is why I had set firm stops. You also don’t want to get caught into the emotions of changing your game plan. Sometimes new option traders make some of these mistakes and mismanage positions which can cost you a lot of money. If you have set entry and exit points, especially when you hit a 100% return, then yeah, it can be frustrating to watch the trades continue higher, but at least you know your profits are safe.

Once you have booked a 100% profit on one trade, it opens the doors to have more flexability in other trades.

Rick Rouse