Wells Fargo has bounced after a big drop, and one investor is
positioning for new lows.
optionMONSTER's Depth Charge tracking system detected the purchase
of about 10,000 September 24 puts for $0.87 and the sale of an
equal number of October 23 puts for $1.08. Volume was above open
interest in both strikes.
Known as a bearish diagonal spread, the trade has a complex set of
outcomes. It generated a credit of $0.21 off the bat and stands to
earn an additional $1 if WFC falls to $23 by September expiration
and holds that level. If, however, it falls below $23, the investor
will have to buy shares at that price.
The good news is that the trader will have already collected $1
from the September puts, so the entry price would really be $22.
Overall the trade was probably the work of a long-term investor in
the San Francisco-based lender. The diagonal spread protects
against limited drop in the near term while setting them up to buy
more shares at lower prices later in the year.
WFC is up 2.2 percent to $25.10 in morning trading. The stock
dropped 10 percent in the preceding month.
There is also a calendar spread on the name, with October 25 puts
sold for $1.69 and the September 25s purchased for $1.16. That
strategy will profit from the stock holding its ground while
creating the possibility of getting long at lower prices. (See our
Overall option volume is already above average in the heavily
traded name, with puts outnumbering calls by 11 to 1.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
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