Option Activity Alert: Wells Fargo, Lamar Advertising

WFC – Wells Fargo & Co. – Bullish traders snapped up in- and out-of-the-money calls on Wells Fargo today, which may indicate that some options market participants are gearing up for a sharp rally in the price of the underlying shares. Shares in Wells Fargo & Co. climbed 2.2% in late afternoon trading to secure an intraday high of $26.50. Investors expecting the rally to continue purchased more than 4,200 in-the-money calls at the November $26 strike for an average premium of $0.78 apiece. Call buyers at this strike are poised to profit should shares rally above the average breakeven price of $26.78 by November expiration. More than 20,355 call options were picked up at the November $29 strike for an average premium of $0.05 each versus previously existing open interest of 9,403 contracts at that strike. Investors holding these contracts make money if Wells Fargo’s shares jump 9.6% to trade above the average breakeven price of $29.05 by expiration day this month. Of course, call buyers paying $0.05 apiece could take profits ahead of expiration regardless of whether or not the calls land in-the-money if premium on the calls continues to appreciate. Bulls also looked to the December $29 strike where another 1,800 call options were purchased for an average premium of $0.24 a-pop. WFC’s shares last traded above $29.24 back on June 3, 2010.

LAMR – Lamar Advertising Co. – The outdoor advertising company that sells advertising space on billboards, buses, shelters, benches and logo plates popped up on our ‘hot by options volume’ market scanner due to put activity in the November contract. It looks like investors are picking up bear put spreads ahead of Lamar’s third-quarter earnings report, which hits the airwaves before the market opens tomorrow morning. Lamar’s shares rallied more than 2.00% in the first half of the session to touch an intraday high of $34.70, but have since pared earlier gains to stand 0.60% lower on the day at $33.81 as of 2:30 pm in New York. Put players populating Lamar Advertising purchased roughly 1,000 now in-the-money puts at the November $34 strike for an average premium of $1.44 each, and sold about the same number of puts at the lower November $31 strike at an average premium of $0.43 apiece. Net premium paid to establish the bearish spread amounts to an average of $1.01 per contract. Thus, investors are poised to profit should LAMR’s shares fall another 2.4% from the current price of $33.81 to slip beneath the average breakeven point on the downside at $32.99 by November expiration. Maximum potential profits of $1.99 per contract are available to put spreaders in the event that Lamar’s shares plunge 8.3% lower to trade below $31.00 by expiration day in a few weeks time.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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