Call Options Keep Flying as Deutsche Bank AG (DB) Extends Epic Run

One options trader targeted Deutsche Bank AG's (USA) (DB) December 2017 22-strike call

Alex Eppstein
Dec 6, 2016 at 2:19 PM
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Bank stocks have been among the top performers since the Nov. 8 U.S. presidential election, further bolstered by expectations of a Fed rate hike next week. One major beneficiary of this trend has been Deutsche Bank AG (USA) (NYSE:DB), and based on the stock's options backdrop, traders anticipate future gains for the recent outperformer.

Right now, DB shares are up 7.3% at $17.87, buoyed by a price-target hike at Morgan Stanley to 16.5 euros from 13.9 euros. Fitch also weighed in on German banks, describing them as "stable," but warning of potential pressure on net interest margin due to a rising proportion of low-yielding loans.

As alluded to, options traders have been predominantly bullish toward Deutsche Bank of late. Call open interest ranks just 4 percentage points from an annual peak, while intraday call volume is running in the 99th percentile of its 12-month range. Digging deeper, DB calls are crossing at triple the usual intraday rate, with a sweep of 1,548 contracts at the December 2017 22 strike seemingly bought to open. In other words, this long-term speculator anticipates the shares will topple $22 by next December, reaching territory that hasn't been explored since January.

This trend toward call options has been clear in recent weeks, as well. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), DB has amassed a 10-day call/put volume ratio of 1.01 -- just 14 percentage points from a 52-week peak.

Elsewhere on the sentiment front, short sellers have been turning tail as the stock's been heating up. In the most recent reporting period alone, short interest plunged 24.2%. However, that still leaves nearly 37 million shares sold short, which would take close to a week to buy back, at DB's average daily volume. In other words, there's more room available for a short-squeeze.

As alluded to previously, Deutsche Bank AG (USA) (NYSE:DB) has been picking up the pace of late, despite being a long-term disaster. Specifically, the financial stock bottomed at $11.19 in late September. Since then, shares of the German bank have exploded almost 60% higher, and are on pace to easily top their 50-week moving average for the first time since August 2015.

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