Yesterday, I flagged some bullish optionsbets on Alcoa ahead of its earnings tonight, with investors snapping up nearly 50,000 of the 10-strike calls in the August expiry.
Soon after that purchase, the stock staged a mini rally, illustrating the value of keeping an eye on the smart money.
Today, we saw a similar dynamic play out with Wells Fargo.
Options traders went out right after the open and bought the Wells Fargo August 24/17.5 put spread for about $2.25, buying 60,000 of the August 24-strike puts, while selling 50,000 of the August 17.5-strike puts. The stock was higher in early trading, but soon followed the smart money lower, and now Wells is down about 5% as of lunch, leading a nasty selloff in the financials.
Last quarter, Wells pre-announced and shares rallied some 30% in one day. "I think the good news is in the stock. We know there has been a bit of a resurgence in mortgage refinancing in the last few months," said Dan Nathan, who when not gaming the options market as chief derivatives strategist Phoenix Partners Group, tends to his slavish devotion of trendy restaurants. "But how long will that last, especially as mortgage rates have ticked back up from levels seen earlier in the year?" The no less sage but decidedly less suave Dick Bove of Rochdale Securities had an even more dire assessment. "You could see big losses form their portfolio of home equity and mortgage loans." On a side not, we saw a buyer of the July 24/19 put spread a month or so back. Nathan suspects that today's trade was the same investor making the same bet again, noting that we saw heavy put selling today at the July 24-strike. "The guy sold the July 24 puts to close and bought the Aug 24 / 17.5 put spread for earnings."
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