Wells Fargo Options (WFC): Unusual Trading Activity
Options in mega bank Wells Fargo (WFC) are showing heavy activity today.
You see, for the next few weeks, our multiple screens are going to be flashing red and green faster than you can blink. The reason, earnings season is underway!
Earnings season is like Christmas for option traders.
Volatility spikes and stocks could see large swings up or down. And in the weeks ahead, if option traders make the right decisions, they can easily make hefty profits.
So, with Wells Fargo reporting earnings tomorrow morning, how are option traders setting up to profit?
Technically, this bank has been in a very defined range. Since the beginning of 2012, WFC has traded between $30 and $32 a share. Then in March it spiked, before settling in a new range between $33 and $34 a share.
Now, option traders are ready for another leg up…
Right now, WFC is trading right at the top of its range at $33.65.
And option traders are loading up the truck on call options.
During the first hour of trading, we’ve already seen 15,000 contracts change hands. The bulk of the volume is concentrated around the April $33 and $34 strikes. These two strikes account for 13,000 of the calls.
It’s obvious that option traders aren’t concerned with a big sell-off. If they were, we would see them buying spreads.
Meaning, option traders are just buying long for unlimited upside gains (they aren’t hedging with other options).
But why are they so hyped on this name?
Wells Fargo is one of the four largest banks in the United States. By the end of 2011, they had $1.3 trillion in assets.
The company is split into several segments… Community Banking, Wholesale Banking; and Wealth, Brokerage, and Retirement. They are 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 its pending earnings announcement, there’re 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 given some analysts near-term earnings forecasts, they think WFC could possibly raise its quarterly dividend again to $0.35 per share by the end of 2013.
People love high dividend yielding stocks right now!
In addition, by avoiding the worst lending mistakes of its peers, Wells Fargo has positioned itself in an excellent position to gain even more customers and create value as the economy recovers. This could translate to a possible acquisition by WFC or even the sale of Wells Fargo to another big bank.
Either way, when Wells Fargo reports earnings tomorrow morning, option traders will be looking for the stock to move higher.
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Category: Unusual Options Trading Activity
