Will Wells Fargo & Co's (WFC) Account Scandal Shake Option Bulls?

Wells Fargo & Co (WFC) has terminated 5,300 employees for fraud

Sep 9, 2016 at 10:08 AM
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Heads are rolling over at Wells Fargo & Co (NYSE:WFC). The banking giant has fired 5,300 employees for creating unauthorized accounts "to hit sales targets and receive bonuses," said Richard Cordray, director of the Consumer Financial Protection Bureau. The news has the financial stock down 0.3% at $49.77, and is likely to disappoint bullish options traders.

Over the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.50 WFC calls for every put. The corresponding call/put volume ratio ranks just 6 percentage points from an annual peak, hinting at optimism toward the shares. This is echoed by the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.64, which sits in the bottom one-third of all readings taken in the last 12 months. If option bulls hit the exits, headwinds could ensue.

Meanwhile, pessimism has been unwinding among short sellers. Short interest plunged 13.7% in the latest reporting period, and now accounts for a tiny 0.5% of WFC's float. In other words, there's very little sideline cash available to fuel any potential breakout attempts.

On the charts, Wells Fargo & Co (NYSE:WFC) has flashed few signs of strength. Repeated attempts to clear the $50-$51 zone have failed, leaving the bank stock at a 8.4% year-to-date deficit. What's more, things could get even uglier if the shares give up support at their 200-day moving average, which they're currently testing.

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