Deja vu all over again in September? There are rumors swirling from several sources (including Bloomberg) about a large bank failure. Put volume is soaring in Wells Fargo, but the rumor is that the bank is possibly in Europe….More to come….
WFC – Wells Fargo & Co. – A battering for banking stocks appears to be back on the agenda today. Put activity in Wells Fargo compounds a 3% price decline to $26.67. We noted heavy put volume two weeks ago just as the share price reached its best level since January. In mid-morning trade around 25,000 put options expiring in October traded with premiums rising from 75 cents to 95 cents. Within an hour those puts were changing hands at 1.20. The now at-the-money 26 strike has also shot up from 1.25 to 1.85 as pressure on the stock emerges. In a sign of deteriorating prospects for the company, option traders sent implied volatility sharply higher to 56% – some 22% above yesterday’s gauge of fear.
VIX options are also active:
VIX – CBOE Volatility index – Our early edition wouldn’t be complete without pointing to the 8% rise in the fear gauge to 28.08 today. Its rise seems paltry considering the sudden break in sentiment today especially across certain financial names. While the overall tone has certainly steadied recently, which is why the Vix has remained beneath an index reading of 30 for about two months, there’s an awkward confluence of bearish factors rising in importance. The cash-for-clunkers program has allegedly brought forward demand from the future and was essentially a consumer giveaway. Analysts don’t expect a repeat performance anytime soon. That takes away from a bigger picture back-to-work argument and the market awaits the latest employment report this Friday. Earnings have been good, but again, many point out that this could be a one-trick pony. Asian markets have been grinding lower for fear that Chinese stimulus can’t replace external demand eternally. There was notable activity in the September contract today with 32.5 and 35 strikes being bid higher on heavy call option volume. That argues for further stock market weakness. Don’t they say that September is typically a bad month for stocks?
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.