A $9M Big Bank Straddle (And My Piggback)

Hey Traders,

Once again, Wells Fargo & Co (Ticker: WFC) is making headlines …

And not in a good way (surprise surprise).

This time, however, it isn’t anything the banking and investment giant has done itself, per say …

But rather a letter sent to the Federal Trade Commission (FTC) from Massachusetts Senator Elizabeth Warren, calling for the breakup of WFC by separating its banking and non-banking activities.

Without directly addressing the Senator’s demands, WFC issued a statement essentially saying it has cleaned up its act in recent years, and is “a different bank today” than five years ago.

All Bark, No Bite

Frankly, Sen. Warren’s letter is unlikely to result in any real actions taken …

But WFC’s earnings report on October 14 could have real-world ramifications …

And one big-volume trader in WFC’s pits looks to be expecting a move …

Here’s how they’re playing it, and here’s a few hints about my own “piggyback.”

A Big Bank Straddle

Scandal-plagued WFC has certainly been under quite a bit of scrutiny in recent years …

Although you wouldn’t necessarily be able to tell it from its chart.

The shares are still a fair ways off their 2018 all-time high of $57.93, but they’ve recovered significantly from their COVID lows near $20, and a recent $250 million fine for “unsafe” practices in its home lending loss-mitigation program actually helped stem some of the uncertainty among investors, giving the banking stock a counterintuitive boost.

Chart courtesy of StockCharts

WFC is now sitting just below its 50-day moving average, which has recently served as a ceiling on several occasions, and could pose as resistance in the days ahead.

However, the Big Money trader in WFC’s pits yesterday won’t necessarily mind if it does … so long as WFC shares trend in the opposite direction …

Shortly after the open yesterday, someone with some very deep pockets purchased a very large WFC October-dated straddle, buying 22,0000 45-strike call contracts for $2.69, and simultaneously purchasing 22,000 45-strike puts for $1.24.

For those of you keeping track, that’s a hefty $8,646,000 outlay betting on WFC to “do something!”

This trade will be in-the-money once WFC hits either $48.93 or $41.07, representing either a 6% move higher or 11% move lower from Tuesday’s close of $46.05.

For those of you who watched Sunday’s video on delta hedging and how market makers can “pin” a stock, you might be interested to know this was tied to a delta hedge sale of 754,800 shares at $46.80.

What do the rest of WFC’s pits think?

While put open interest is significantly higher than usual (in the 98th percentile of its annual range), in general, options traders still seem to be more call-skewed, with both call volume and call open interest outpacing puts.

Looking at the October-dated contracts, in addition to the 45-strike this straddle-buyer seems to really like, the 47-strike and 50-strike calls are also seeing exceptional volume crossing the tape.

Now, like I mentioned, I liked this trade so much I decided to “piggyback” this trade … with a few adjustments, of course.

While this trader purchased their contracts for standard options expiration, I have very little interest in holding onto my contracts through WFC’s earnings call slated for the morning of October 14.

Therefore, I decided to make my own trade ahead of earnings, purchasing the October 8 expiration term.

Additionally, rather than making my move at the same 45-strike, I found a nearby strike that seemed to be more favorably priced. I was able to purchase my calls for about $1.45, and spent less than $900 total on six contracts.

Of course, I can’t tell you the full details of this trade … but I did send everything to my SharpBets subscribers, including a full video breakdown of the trade.

I’m hoping this trade will put my recent trade record to 6/6 wins … but I’ll have to wait and see.

If you’d like to receive my next SharpBets pick … you can still join me right here (but don’t spread this link around, we closed this quarterly offer to the general public a few days ago, and I’m only re-opening it until midnight!).

Whether you have $900 or nearly $9,000,000 on the line … I’m sure plenty of us will be keeping an eye on WFC to see if the banking behemoth will make any sudden moves over the weeks ahead!

Your Only Option,

Mark Sebastian

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