Wells Fargo Options Traders Buy Calls After Warren Grills CEO

WFC options bulls appear to be targeting a move to record highs by November

Karee Venema
Oct 3, 2017 at 3:15 PM
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    It's a busy day on Capitol Hill, with former Equifax CEO Richard Smith testifying in front of the House Energy and Commerce Committee, and Wells Fargo & Co (NYSE:WFC) CEO Tim Sloan appearing before the Senate Banking Committee. The WFC CEO was grilled by Senator Elizabeth Warren, with the Massachusetts Democrat saying he "should be fired" in the wake of last year's fake account scandal. And though supportive words from Warren Buffett, head of WFC's largest shareholder Berkshire Hathaway, are failing to lift the bank stock, some options traders are betting on a quick bounce to record highs.

    With roughly 23,000 calls and 20,000 puts on the tape at last check, WFC options volume is running at the expected pace today. It's notable that the November 60 call is one of the most active strikes, and it seems safe to assume new positions are being purchased here. If this is the case, the goal is for WFC to topple the round $60 mark by expiration at the close on Friday, Nov. 17. The stock topped out at a record high of $59.99 on March 1.

    Call buying has been an unusually popular strategy on WFC in recent months, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 50-day call/put volume ratio of 1.41 ranks in the elevated 86th percentile of its annual range.

    And despite the stock's choppy price action, WFC has consistently rewarded premium buyers over the past year, per its Schaeffer's Volatility Scorecard (SVS) of 92. In other words, Wells Fargo options have regularly priced in lower volatility expectations than what the stock has actually realized on the charts.

    Technically, the shares have traded as high as $59.99 this year and as low as $49.27, and while WFC is up 12.3% from this Sept. 7 bottom, it's trading just 0.3% above its year-to-date breakeven mark. Looking ahead, this level could be tested after Wells Fargo reports earnings ahead of the open on Friday, Oct. 13. Over the past eight quarters, the stock has closed lower in the session subsequent to reporting six times.

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