Big Printin’ – INTC calls, WFC puts, XLF calls

by Dan September 21, 2016 3:52 pm • Big Printin'

Here is some untied apparently directional options activity that caught my eye in today’s trading:

INTC: yesterday in this post I highlighted some out of the money call buying in November expiration (here), and today call volume ran hot at almost 4x that of puts with total volume nearly 2x average daily.  The largest trade of the day came shortly after 1pm when the stock was trading $37, a trader sold to close 12,000 of the Oct 36 calls at $1.69 and bought to open 12,000 of the Jan 39 calls for 98 cents.  This is what options traders call rolling up and out.

WFC: yesterday Wells Fargo CEO got skewered on capital hill by the Senate finance committee, and today the stock was downgraded today by JP Morgan to a Neutral rating as they see “Sees additional investigations, continued media attention, with WFC probably needing to spend “a lot more” on litigation, examining past violations, responding to requirements from more hearings, investigations; rev. growth likely to slow”.  Also today their largest shareholder Warren Buffett, who has not said a word about the growing cross selling scandal, said this morning that he would wait till November to comment on the situation.  At 11am, at least one trader looked to lock in some downside protection between now and October expiration, or merely making a low probability bearish bet that the stock will crater in the coming weeks. When WFC was $45.63 at 11am a trader bought to open 20,000 of the Oct 40 puts for 17 cents (or $340,000 in premium). To be clear, whatever the trader’s intent, this is NOT a convicted bet from a directional standpoint, or reasonable protection as the puts break-even down at $39.83, or about 13% from the trading level. The options market places about an 8% probability of this outcome.

High probability or not for those puts, make no mistake, the stock is sitting right on massive multi-year support at $45:

From Bloomberg
From Bloomberg

XLF: prior to the Fed’s rate announcement, that for some ridiculous reason some traders still thought there was a chance for a hike, one trader bought a block of shorted dated calls in the Financial Select etf, the XLF. When the etf was trading $19.39 a block of 36,000 Oct 20 calls were bought for 14 cents just before noon, followed by a block of 20,000 bought for 15 cents shortly after noon. 120,000 of these calls have traded on the day, most were opening.  With the FOMC not raising at today’s meeting, I think it is safe to say the Fed will not raise at their next meeting in Nov, days before the presidential election. These calls, while out of the money, will catch most of its largest components Q3 earnings.