Wells Fargo Options
Options in mega bank Wells Fargo (WFC) showed heavy activity yesterday right after the Federal Reserve hinted at the possibility of more monetary easing.
You see, although WFC reported earnings recently, option traders seem to still be enamored with the banking sector… especially with the thought of another round of government easing.
And as we saw yesterday, the mere hint of government intervention turned the market around. Most important, the turnaround was lead by financials.
Government intervention is like Christmas for option traders because banks will be able to borrow at even lower costs. And at least one trader started to take advantage of this possible rumor in a big way.
So, why Wells Fargo?
I believe this to be the result of pure technicals.
Wells Fargo has been in a very defined trading range. In the first few months of 2012, WFC traded between $30 and $32 a share. Then in March it spiked, before settling into its current range between $33 and $34 a share.
Right now, WFC is trading in the middle of the range at $33.20.
And one option trader clearly sees WFC heading higher soon.
During the last hour of trading, our tracking system detected a single block trader selling 18,700 WFC August $31 strike put options at an average price of $0.20.
Meaning, this trader is looking for WFC to be above $31 a share at expiration in mid-August. If he’s correct, he will pocket the $374,000 in premium collected on the trade.
But why the hype on this name?
Wells Fargo is one of the four largest banks in the United States. At the end of 2011, they had $1.3 trillion in assets.
The company split into several segments: community banking, wholesale banking, wealth management, brokerage, and retirement. They’re also a major player in the residential mortgage market servicing $1.8 trillion in loans.
Although we’re seeing huge option activity mainly because of the technicals coupled with possible government monetary easing, there are some other reasons this stock could be poised higher…
Recently, Wells Fargo announced a quarterly dividend increase from $0.12 to $0.22 per share. And some analysts think WFC may raise its quarterly dividend again to $0.35 per share by the end of 2013.
No question about it, investors love high dividend yielding stocks right now!
In addition, analysts also predict WFC’s earnings power is likely to improve in the near term. They see this happening as credit quality improves, interest rates start to climb, and the company continues to cut costs.
Either way, as long as WFC remains in its trading range, option traders will be very happy.
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
