Unusual Options Activity Alert : Deutsche Bank (DB), PXP Plains Exploration and Production (PXP) & Wells Fargo (WFC)
Betting Against Deutsche Bank
Deutsche Bank (DB) saw bearish spread trading Wednesday. The stock failed to join a rally in the bank sector. While the PHLX Bank Sector Index (.BKX) rose 1.60 to 67.18, DB settled the trading session down $.46 to $92.69.
Bloomberg.com reported today that Deutsche Bank Chief Executive Ackermann is facing pressure from shareholders to buy a lender such as Deutsche Postbank AG to lessen its reliance on its securities unit, where losses are mounting. DB is due to report tomorrow and expected to post second quarter profits of 491 million euros, down from 1.78 billion a year ago.
In the options market, trading was clearly defensive heading into the report. Volume ran 21 times the usual, with 12,000 DB puts and just 205 calls trading. Most of the action was in the October puts where, at approximately 13:15 Eastern time, 3,000 of the 90s traded askside for $5.90 a contract, 3,000 of the 85s traded askside for $4.10, and 6,000 of the 75s traded bidside for $1.65. With open interest of less than 400 contracts (total), the action has all of the characteristics of opening vertical bearish put spreads.
If so, the strategist is paying $3.35 per spread with a profit potential of $9.15 if DB falls below $75 by October options expiration. The breakeven to the downside is $84.15. If the stock stays above that level, losses are probable unless the stock falls and the spread is closed before options expiration. The maximum possible loss is the net debit for the spread, which would occur if DB settles above $90 a share at expiration.
A Plains Exploration Play
PXP Plains Exploration and Production (PXP) saw five times its normal trading volume on what appears to be strangle buying Wednesday. The stock rallied $3.62 to $58.08 with help from bubbling crude oil prices. Some players seem to be expecting the volatility to continue and are trying to play the trend with the November 60/55 strangle. Just before 11:00 Eastern time, an order of 2,300 of the 55 puts traded offerside for $7.54 a contract on the ISE. At same time, 2,300 of the 60 calls traded askside for $5.41 a contract. Open interest in the two contracts is 397 and 318 contracts, respectively.
Consequently, todayís volume seems to represent opening transactions. In addition, volume in both contracts rose to more than 3,700 contracts on the day, which suggests that strangle might have been repeated more than once. PXP is a volatile energy stock with a 52-week high and low of $79.86 and $35.31. Earnings due out on August 6.
Flying with Wells Fargo
WFC Wells Fargo (WFC) continues to attract a lot of bearish spread trading despite the recent rebound in the stock. WFC rose $.74 to $31.20 Wednesday and is now well off (52.5 percent) a 52-week low of $20.46 set two weeks ago. One strategist seems to be betting that the rally will soon run out of steam, however, and is playing the stock with a directional butterfly spread.
Just before the closing bell, an order of 30,000 WFC October 20 puts traded bidside or for $.40 a contract. Meanwhile, 15,000 of the October 12.5s traded askside for a dime and 15,000 of the October 27.5s traded midmarket for $1.80. All traded on the PHLX, where sources tell WhatsTrading.com the activity was part of an October 12.5/20/27.5 butterfly spread. If so, this big time player paid $1.10 per fly with a potential payoff of $6.40 if WFC settles at $20 at October options expiration. The profit zone at expiration is between, roughly, $13.75 and $26.50.
Posted By: Fred Ruffy
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