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Wells Fargo Weekly Puts In Play As Financials Retreat

Posted on the 13 October 2011 by Phil's Stock World @philstockworld

Today’s tickers: WFC, EQIX & TMO

WFC - Wells Fargo & Co. – Highly anticipated third-quarter earnings released from JPMorgan this morning knocked financials off what had started to look like a possible road to recovery. Shares in Wells Fargo, set to reveal its own performance for the third quarter ahead of the opening bell on Monday, fell 4.3% to $25.80 by 12:20 pm EDT. Put buyers burst onto the scene straight out of the gate on Thursday. Investors chomping at the bit for downside protection are snapping up puts that could have been purchased yesterday for a fraction of the present cost. Bearish action in the weeklys is heaviest at the Oct. ’14 $26 strike, where more than 12,000 now in-the-money puts changed hands against open interest of 3,465 contracts. It looks like more than 8,000 of the puts were purchased for an average premium of $0.39 a-pop by midday on Wall St. The premium required to buy the puts at the tail-end of Wednesday’s session ranged between $0.12 and $0.15 per contract. Investors are trading more than two put options on Wells Fargo this afternoon for each single call option in action on the stock today. Options implied volatility on WFC, which had come off earlier in the week, currently stands 9.7% higher on the day at 49.3%.

EQIX - Equinix, Inc. – Fresh prints in Equinix call options suggest one strategist is positioned for the price of the underlying to realize substantial, albeit limited, gains through expiration day in November. The ratio call spread initiated on the provider of network neutral data center services may be a bullish bet on the stock ahead of the company’s third-quarter earnings report on October 26. Shares in Equinix currently trade 0.75% lower on the day at $94.16. It looks like the investor responsible for the transaction purchased 2,100 calls at the Nov. $100 strike for a premium of $3.70 per contract, and sold 4,200 calls up at the Nov. $105 strike at an average premium of $1.93 apiece. The trader receives a net credit of $0.16 per contract on the spread. Additional profits are available on the position should shares in EQIX surge 6.2% in the next five weeks to exceed $100.00 by expiration next month. The trader may walk away with maximum potential profits of $5.16 per contract if shares in Equinix jump 11.5% over the current price of $94.16 to settle at $105.00 at expiration. Shares in EQIX last hovered around $105.00 at the beginning of August.

TMO - Thermo Fisher Scientific, Inc. – Shares in the medical equipment maker fell 1.25% to $53.96 in early-afternoon trade, but activity in November contract put options earlier in the session suggest some strategists see the price of the underlying pulling back further in the near term. Traders exchanged more than 2,000 puts at the November $50 strike today against open interest of 513 contracts. It looks like most of the put options were purchased for an average premium of $1.52 apiece. Buyers of the contracts make money if shares in Thermo Fisher Scientific drop more than 10.0% to breach the average breakeven price of $48.48 by November expiration day. TMO’s shares had traded as low as $48.05 as recently as October 4. The Waltham, Massachusetts-based company reports third-quarter earnings before the open on October 26. Options implied volatility on Thermo Fisher is up 11.6% to stand at 40.6% as of 1:05 pm in New York.

Caitlin Duffy
Equity Options Analyst

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