Bears Close In As Wells Fargo & Co (WFC) Backlash Continues

Wells Fargo & Co (WFC) has seen an influx of put buying and short selling -- but its bearish bandwagon is far from full

by Celeste Taylor

Published on Sep 28, 2016 at 3:46 PM

Wells Fargo & Co (NYSE:WFC) has been dealing with rampant backlash after its phony account scandal, and options players have been taking notice. Today, WFC announced CEO John Stumpf -- recently blasted by lawmakers -- would be giving back $41 million in stock awards and will not collect a 2016 bonus. In addition, WFC's board will be conducting an investigation into the firm's retail business practices, and even Fed Chair Janet Yellen weighed in during her congressional testimony today, stating, "Senior management has a responsibility and it's essential that they be held accountable."

WFC is currently sitting 0.1% higher at $45.14, but earlier came within a chip-shot of its post-"Brexit" two-year lows. The banking stock is down 11% since the beginning of the month, bringing its 2016 losses to 17%. From a technical standpoint, the stock is being pushed lower by the formerly supportive 32-week and 60-week trendlines, and while the $44.50 level has served as a foothold for the shares throughout 2016, recent multiple tests of this area could ultimately weaken it.

In the option pits, bears have been buying WFC puts at a faster-than-usual clip. Put open interest is at an annual high, with the leading front-month open interest position the deep out-of-the-money October 40 put, which saw nearly 30,000 contracts added over the past two weeks. Most of this action was of the buy-to-open variety, so although WFC hasn't been south of the $40 level since mid-2013, it appears option buyers are betting on hearty drop by expiration on Oct. 21.

There's still plenty of room on the bearish bandwagon. Wells Fargo & Co (NYSE:WFC) short interest is up 46.1% over the last reporting period, but still accounts for less than 0.8% of WFC's float, leaving plenty of room for additional short sellers to climb on board. Furthermore, 15 of 25 analysts still rate the shares a "buy" or better, with only three "sells" on the books, leaving WFC vulnerable to downgrade-related headwinds

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