Update – WFC Wells Notice

by CC June 22, 2017 2:01 pm • Trade Updates

On June 15th we took a look at Wells Fargo when the stock was 54.25 and detailed a defined risk/ low cost bearish position, selling near term puts to buy July puts, which capture earnings. Here was the trade idea, from June 15th:

WFC ($54.25), Buy the June 30th quarterly/July 21st 52.5 put calendar for .30
  • Sell 1 June30th 52.5 out at .30
  • Buy 1 July 52.5 put for .60

The stock is now lower by 2 dollars and trading near the strike. With the stock 52.45 the original trade is now worth .55. But the puts that expire next Friday have nearly 60 in extrinsic premium left. So if the stock closed here mext week this trade would be worth closer to a dollar. So patience could be profitable

Of course, patience comes with risk. The stock is below the strike and those existing (and future) gains are at risk if it continues lower as it start to gain long deltas (its ideal spot is 52.50).  And if the stock were to bounce hard from here the same is true.

Setting a pretty tight stop in either direction makes sense here. 52 to the downside and 53 to the upside. The trade could be taken off at either of those spots in the next few days for basically the same profits as now. And if I. Stays within that range the profits will increase each day.

For those looking to take the trade into earnings timing a roll to the same conditions makes sense. As the toll will get better in the stock stays near 52.50 for the next few trading days.