Options traders bet on Wells Fargo to surge after Fed stress tests

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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

While some options traders are placing bearish bets on JPMorgan as Fed stress tests approach the big banks, another group is taking the opposite side of that bet in Wells Fargo.

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. 

“We saw more calls trading than puts, outpacing by about 2-to-1; some of that was some short-dated call-buying,” Optimize Advisors CIO Michael Khouw said Wednesday on “Fast Money.”

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. 

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Pedestrians pass a Wells Fargo bank branch in lower Manhattan.
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