Options traders bet on Wells Fargo to surge after Fed stress tests
PUBLISHED THU, JUN 18 20201:03 PM EDTTyler Bailey
WATCH NOWVIDEO01:49Options traders zeroing in on a big bank
The embattled bank is down nearly 50% this year, but traders seem more than willing to bet that the beaten-down name will prove to still be in healthy condition after facing Fed scrutiny.
Khouw spotlighted one trader who was making a bullish bet that will expire July 2 due to the July 4 holiday. That expiration falls exactly one week after those Fed stress tests.
“The July 2 weekly 31-strike calls … Someone was buying those calls, paying a little over 50 cents for 620 of them, and I think what might be going on there is that trader might be speculating that the news comes out of those stress tests is a little bit better than expected, and you might get a short-term pop,” said Khouw.
Those contracts break even around $31.50, or roughly 14% higher than where Wells Fargo closed Wednesday’s session.
“That’s not a play, necessarily, that the dividends won’t be cut, but it is a play that you could see a short-term pop after we get the results,” said Khouw.
Wells Fargo was trading slightly lower on Thursday.