4 Reasons I Didn't Trade Fifth Third Stock Options

Why a Schaeffer's trader rejected a call option on Fifth Third Bancorp (FITB) stock

Feb 3, 2017 at 12:28 PM
facebook twitter linkedin

Our traders are stalking a lot of different stocks throughout the week, but not every potential trade idea develops into a formal recommendation to our subscribers. Whether it's the break of a key technical level for the shares, an unexpected news announcement, or an unfavorable options pricing environment, this regular feature will shed some light onto the factors we view as "dealbreakers" to otherwise intriguing trade setups. Today, Schaeffer's Senior Trading Analyst Bryan Sapp chimed in on one stock he was toying with -- but ultimately rejected -- for a bullish options recommendation recently: Cincinnati-based financial concern Fifth Third Bancorp (NASDAQ:FITB).

What He Liked About FITB Shares

Specifically, Sapp was initially impressed with the stock's rally -- FITB is up nearly 70% year-over-year, and recently touched seven-year highs. Nevertheless, there was plenty of pessimism surrounding the stock -- which often makes for a great contrarian trade, from an Expectational Analysis point of view. For instance, just two out of 25 analysts offer up "buy" opinions, and put buying has ramped up in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). As such, the stock's Schaeffer's put/call open interest ratio (SOIR) is docked at an annual high of 3.34, indicating near-term option players haven't been more put-biased during the past year.

FITB's near-term options are attractively priced, too, from a historical standpoint; the stock's Schaeffer's Volatility Index (SVI) of 26% is higher than just 19% of all other readings from the past year. What's more, FITB sports a Schaeffer's Volatility Scorecard (SVS) of 91, indicating the stock has exceeded option traders' volatility expectations in the past year.

Why He Rejected FITB Call Options

However, there were four reasons Sapp ultimately chose not to recommend FITB call options:

  1. Multiple tests of the $26 level from above. The theory is that the more a support/resistance level is tested, the more apt it is to breaking.
  2. Should $26 fail, there's no "real" support until down to $24, so you'd have to risk about an 8% move against you to stay in the trade.
  3. FITB is staring up at $28 -- double its 2016 lows near $14. These "double lows" could potentially act as resistance.
  4. The stock is trading below both its 20-day and 50-day moving averages, which have both been supportive since mid-2016.

FITB stock chart


Don't miss Schaeffer's free weekly stock market forecast. Sign up now for Monday Morning Outlook.

Grab your FREE Eternal Contrarian report!


Special Offers from Schaeffer's Trading Partners