Why It Might Be Time to Withdraw From This Bank Stock

WFC options are attractively priced, too

by Research Dept.

Published on Feb 5, 2019 at 12:51 PM

Financial firm Wells Fargo (NYSE:WFC) rallied off its late-December multi-year lows only to run into a ceiling at the round $50 mark -- a previous level of support throughout most of 2017 and 2018. This region is also home to WFC's 80-day moving average, and resistance could further be reinforced by a heavy accumulation of call open interest at the overhead 50 strike in the front three-month series of options.

wfc daily chart feb 1


Plus, WFC's Schaeffer's put/call open interest ratio (SOIR) of 0.46 ranks in the 3rd annual percentile, pointing to an unusual call-skew among near-term traders. Previous lows in the SOIR, as well as the front-month gamma-weighted SOIR (at 0.52) and the gamma-weighted SOIR (at 0.47) have preceded weakness in the shares, historically speaking.

What's more, short-covering potential on Wells Fargo is limited, with less than 1% of the equity's float dedicated to these bearish bets.

It's an attractive time to purchase premium on short-term options, too, considering the stock's Schaeffer's Volatility Index (SVI) of 20% ranks in the 14th percentile of its 12-month range -- pointing to relatively muted volatility expectations. Meanwhile, WFC's Schaeffer's Volatility Scorecard (SVS) of 92 indicates the stock has tended to make outsized moves over the last year, compared to what the options market had priced in.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this WFC commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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