Shares of megabank Wells Fargo & Company (WFC) have nearly doubled in the past year. However, over the past 5 years, shares are largely down thanks to a number of scandals. One trader expects a further decline in shares in the next few years.
That’s based on the January 2024 $40 put. With 826 days until expiration, over 10,760 contracts traded against a prior open interest of 442, for a 24-fold jump in volume. The buyer of the put paid $5.60 to make the trade.
The bank has been in the midst of a seeming turnaround. Besides shares doubling in the past year, revenue is up 144 percent, and the bank sports a profit margin of over 22 percent. Plus, the bank trades at just 13 times earnings, a relative value in today’s markets.
Action to take: Shares have been trending down since August, which could be a sign that the longer-dated put option could be a solid winner here. Investors interested in owning the company for the long term might want to wait for that trend to change. That patience may be rewarded in time with an even better valuation.
The put options looks attractive here, both given the company’s current share downtrend as well as a potential market hedge. A declining stock market tends to hit financial companies hard, making this an ideal hedge. Traders may want to consider the put option trade, with an eye towards taking some short-term profits if shares have a major down day.
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.