Wells Fargo & Co (WFC) Slide Stokes Bearish Options Betting

Wells Fargo & Co (NYSE:WFC) is lower, after the big bank said it will eliminate product sales goals

Sep 13, 2016 at 10:49 AM
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Wells Fargo & Co (NYSE:WFC) has plunged 3.1% to trade at $47.03, after the big bank said it would do away with product sales goals in the wake of a highly publicized account scandal. Today's negative price action continues the stock's steep September retreat, and has sparked a rush of activity in WFC's options pits. Total volume is running at five times what's typically seen on WFC at this point in the day, with a number of speculators calling for even bigger losses in the near term.

By the numbers, around 30,000 put options have changed hands so far, compared to about 19,000 call options. Most active is WFC's October 47 put, where it looks like new positions are being purchased. If this is the case, the goal is for the equity to breach $47 by the time the back-month options expire at the close on Friday, Oct. 21.

Elsewhere, shorter-term traders look to be initiating new long positions at WFC's weekly 9/30 45- and 46.50-strike puts. In other words, these options bears are betting on the equity tumbling to levels not seen since late June and early July, respectively, by month's end.

More broadly speaking, it's been call buyers who have been busy in WFC's options pits in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio of 1.49 ranks just 7 percentage points from a 52-week peak.

This optimism toward WFC stock is seen elsewhere on the Street, as well. Short interest, for example, plunged 16.3% in the last two reporting periods, and now accounts for just 0.5% of the equity's available float. This leaves little sideline cash available to help fuel any of the stock's future rally attempts.

Meanwhile, more than half of the 23 brokerage firms that cover WFC maintain a "buy" or "strong buy" rating, while the average 12-month price target of $52.75 stands in territory not charted since January. Should WFC's technical troubles deepen, a round of bearish brokerage notes could translate into fresh headwinds for the shares.

In fact, since topping out at $51 on Sept. 1, the shares of Wells Fargo & Co (NYSE:WFC) have surrendered almost 8%. This is just more of the same, though, considering the bank stock has shed more than 16% since hitting an annual high of $56.34 in early November.

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