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Fifth Third Bancorp (FITB) Strategist Expects Shares to Stick to $18

FITB was singled out for an anti-volatility options trade

by 6/14/2013 9:28 AM
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The shares of Fifth Third Bancorp (NASDAQ:FITB) have been dawdling around the $18 mark for the past month, and one options strategist predicts even more stagnation for the financial concern. More specifically, the trader sold 10,000 puts and 10,000 calls at the July 18 strike, on hopes that FITB remains pinned to this level in the near term.

Digging deeper, the puts traded at the bid price of $0.44, while the calls crossed at the bid price of $0.55, indicating the short straddle was sold for a net credit of $0.99 per pair of options. Plus, open interest skyrocketed on both sides of the strike overnight, confirming fresh initiations.

In order to retain the entire net credit -- which represents the maximum potential profit on the play -- the trader needs Fifth Third Bancorp to finish right at $18 when July-dated options expire, rendering the puts and calls worthless. However, as long as FITB stays between $17.01 (strike minus net credit) and $18.99 (strike plus net credit) -- the equity is currently parked at $18.45 -- the strategist can retain at least some of the initial premium received. Should FITB move beyond one of these levels, though, the investor's risk will begin to accumulate.

Expanding our sentiment scope, we find that calls are the options of choice among FITB speculators. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than four calls for every put during the past two weeks. In fact, the stock's 10-day call/put volume ratio of 4.09 ranks in the 76th percentile of its annual range, pointing to a healthier-than-usual appetite for long calls of late.

Of course, it's worth noting that short interest on FITB skyrocketed by 127.8% during the past month, and now represents nearly a week's worth of pent-up buying demand, at the stock's average daily trading volume. With call buying and short selling rising in tandem, it's possible that the shorts are hedging their bearish bets with bullish options.


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