Regional bank PacWest Bancorp (PACW) was hit hard in March’s banking crisis. Shares are now down 67 percent over the past year. But one trader sees a long-term rebound ahead.
That’s based on the January 2025 $10 calls. With 626 days until expiration, 5,135 contracts traded compared to a prior open interest of 100, for a 51-fold rise in volume on the trade. The buyer of the calls paid $4.05 to make the bullish bet.
Shares recently traded slightly over $10, making this an at-the-money trade. With a 52-week high of $35, a move to that level by expiration would cause the options to rise in value to $25, or more than 6 times higher.
The drop in shares has taken PacWest to just 3 times earnings, and it trades for about one-third of its book value. As long as it doesn’t face an exodus of depositors, it should move higher from here in time.
Action to take: Shares are a speculative bet here, but possibly one that could pay out with more upside than downside. The company’s most recent dividend also suggests a 9 percent yield here, although that may change in time.
For traders, the calls are an inexpensive bet that will likely expire well after the current fears in the banking sector play out. Traders can potentially nab low triple-digit gains in a few weeks given the wild swings in small bank shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.