Traders Sour On Wells Fargo & Company (WFC) Ahead of Earnings

Wells Fargo & Co (WFC) will report fourth-quarter results tomorrow morning

by Alex Eppstein

Published on Jan 13, 2015 at 1:51 PM
Updated on Apr 20, 2015 at 5:32 PM

With fourth-quarter earnings season underway, Wells Fargo & Co (NYSE:WFC) is slated to report bright and early tomorrow. Ahead of this key event, pessimism is running high -- in the stock's options pits and beyond.

For starters, WFC's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio checks in at 1.08 -- with long puts edging out long calls. More significantly, this ratio ranks in the 83rd percentile of its annual range, suggesting traders have bought to open puts over calls at a more rapid pace than usual in the last two weeks. For comparison's sake, this reading was just 0.66 at the end of 2014, meaning the pace of purchasing puts has picked up significantly of late.

As a result, WFC's Schaeffer's put/call open interest ratio (SOIR) now sits at a 12-month extreme of 1.73. In other words, open interest among short-term options is more put-skewed now than at any other time in the last year.

This negativity extends to the brokerage bunch, as well. Among the 19 analysts covering WFC, 10 have doled out "hold" or "strong sell" recommendations, versus nine total "buys." Additionally, the financial stock's consensus 12-month price target of $55.78 is just 7% above the current price of $52.15.

The aforementioned skepticism is surprising, considering WFC's 14.4% year-over-year advance. If that's not enough, the shares have recently found a foothold atop their ascending 40-week moving average, located at $51.86 -- meaning they may be destined for a near-term bounce.

Things could get especially interesting should Wells Fargo & Co (NYSE:WFC) top expectations tomorrow morning. In fact, a post-earnings rally could prompt option bears to capitulate and/or analysts to upwardly revise their ratings and price targets -- potentially adding fuel to the stock's fire. On a related note, Evercore ISI initiated coverage on WFC with a "hold" opinion last night.


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