Unusual Options Activity: An All-In, $2 Million Bet on a Bank Stock Rebound
Last Thursday, we saw traditional bank stocks take a hit, falling 4-6% on the day.
Sometimes investors see these sharp drops and start panic selling.
This is what is known as a “shakeout” on Wall Street, where they shake out the weak hands in the market.
But, to opportunistic traders and those with some cash to put at work, these are excellent opportunities to jump in.
And that’s exactly what we saw last week.
Our unusual options activity scanner showed us that banks were seeing a ton of bullish activity. A few option trades stood out but it was only on three big banks, Wells Fargo & Company (NYSE: WFC), Citigroup (NYSE: C) and Bank of America (NYSE: BAC).
Three options, one on each bank, totaling more than $2 million riding on a rebound.
Here’s what they were trading…
Putting Money on the Line
You can tell these traders are just in for the short-term rebound. We had two bullish bets for the June 25 expiration, this Friday, and one for July 23, just over a month away.
One option saw over $620,000 on Wells Fargo calls. This trader was buying the June 25, $44 call options for about $0.69. Over 9,000 contracts were traded.
The stock closed Thursday at $42.79, meaning the trader needs the stock to move 4.4% over the next week just to hit breakeven.
Again, the stock dropped more than 6% last Thursday, when this trader jumped in.
So they are betting on a quick snapback rally to deliver them profits.
Another trader rolled the dice with $950,000 on Citigroup.
They grabbed the July 23 $70 call options for $1.90 in about 5,000 contracts.
With nearly a million dollars on the line, they are looking for Citigroup to bounce 4.5% over the next month.
That’s basically the same price move the Wells Fargo trader is looking for, but instead of a week, this trader is giving it a month to play out.
Then there was more than a $1 million bet on Bank of America.
A trader purchased the June 25, $39.50 call option for about $0.84 and scooped up over 13,000 contracts.
Remember, one contract equals 100 shares. So they laid down more than a million on Bank of America rebounding this week.
This trader may be in the best shape of them all.
They only need Bank of America’s share price to jump 1.3% this week to deliver them profits on the trade.
The Power of Shakeouts
That’s three huge bets, on just three companies that stood out on this week’s unusual options activity scanner.
These are not random bets.
Each trade is a clear gamble that the bank stocks that were hammered on Thursday are due to bounce right back.
I love when traders lay out big bucks on bold bets like this.
It’s bold because it is a short period of time. Anything can happen this week.
But they clearly believe that bank stocks were sold for no real reason except ordinary volatility, and they are looking to profit from Wall Street’s latest shakeout.
Shakeouts are one of my favorite opportunities in the market too.
Check out a recent presentation I put together walking you through my number one tool for spotting short-term shakeout opportunities — the Shakeout Rotation Graph.
Chad Shoop CMT
Editor, Quick Hit Profits
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.