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Fifth Third Options Players Bank on Familiar Resistance

Speculators employed calls to bet on a short-term headwind for FITB

by 9/27/2011 10:30:35 AM
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The shares of Fifth Third Bancorp (FITB - 10.52) followed the broader equities market higher yesterday, climbing back into double-digit territory. However, the security is now facing a familiar speed bump in the $10.80 - $11 neighborhood, which has smacked the stock lower since early August. What's more, looking at yesterday's action in the options pits, it appears some speculators are betting on this region to remain impenetrable over the near term.

Daily price chart of FITB since July 2011

Jumping right in... FITB saw around 6,400 calls cross the tape yesterday -- more than double its average daily call volume, and more than 12 times the number of FITB puts traded. Most of the action centered on the October 11 call, which saw roughly 3,800 contracts change hands -- mostly at the bid price, suggesting they were sold. Plus, call open interest at the front-month strike swelled significantly overnight, pointing to sell-to-open activity.

By writing the 11-strike calls to open, the sellers are expecting FITB to remain south of the $11 level through October options expiration. Unlike the call buyer, the call seller is hoping the options expire worthless, allowing them to retain the entire premium received from the sale -- which represents the maximum reward on the play.

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