Option Trade
Wells Fargo & Co (NYSE:WFC) Puts
Tuesday, July 11, 2017

** OPTION TRADE: Buy the WFC AUG 18 2017 55.000 PUT at approximately $1.20. Place a pre-determined sell at $2.40.

Note: No protective stop losses added -- but if you wish to do so make it $0.50.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Wells Fargo & Co (NYSE:WFC), one of the largest U.S. mortgage lenders, will reports its second quarter numbers before the market opens Friday, July 14. Analysts forecast earnings for the quarter of $1.03 per share. During the same period last year the company earned $1.01 per share.

The recent Federal Reserve stress tests drove shares higher, and put WFC very close to break-even for the year. The company has missed revenue estimates the last two quarters, and that will be a primary focus for traders this quarter. If there is another earnings beat and revenue miss, the market will push shares lower and erase the gains the stock made following the results of the stress test.

Wells Fargo is the worst performer reporting earnings results Friday, hitting a high in March before reversing direction, bottoming in early June, then recovering 8% in the past month. Wells Fargo is the only stock in this group that's missed earnings over the past year - coming up around 4% short in December.

For the most recent three-month period, Wells Fargo is expected to earn $1.01, just as it did a year ago, but four pennies less than the consensus three months ago. WFC enjoyed two upgrades a couple months back, but only one was to an "outperform" rating.

Equities research analysts at Jefferies Group decreased their Q2 2017 earnings estimates for Wells Fargo & Company in a research note issued on Wednesday. Jefferies Group analyst K. Usdin now forecasts that the financial services provider will post earnings per share of $1.01 for the quarter, down from their previous estimate of $1.06. Jefferies Group currently has a “Hold” rating and a $62.00 price objective on the stock. Jefferies Group also issued estimates for Wells Fargo & Company’s FY2017 earnings at $4.15 EPS and FY2018 earnings at $4.40 EPS.

The stock is down 0.8% on the year.

Wells Fargo & Company has a one year low of $43.55 and a one year high of $59.99. The company has a 50 day moving average price of $53.07 and a 200-day moving average price of $55.18. The stock has a market cap of $277.88 billion, a P/E ratio of 13.901 and a beta of 0.96.

Influencing Factors to Consider

Wells Fargo’s shares continue to struggle, reflecting lingering issues pertaining to the customer accounts issue. The stock has gained +1.1% year-to-date, underperforming the Major Banks industry, which is up +7.5% in the same time period. Wells Fargo lacks investment banking and capital markets assets that have been a source of strength for many of its peers lately.

But the bigger issue for the bank has been the customer accounts issue. Troubles have intensified following the bank's $190-million settlement last year to resolve regulators' claims of illegally opening millions of illegal accounts.

Regulatory reform remains another potential macro tailwind, though the timing of any legislative enactments on this front remains uncertain. Notably, Wells Fargo received Fed's approval for its 2017 capital plan.

Investor’s sentiment for WFC decreased to 0.67 in 2016 Q4; down 0.30, from 0.97 in 2016Q3. It is negative, as 112 investors sold Wells Fargo & Co shares while 836 reduced holdings. 149 funds opened positions while 487 raised stakes.

Analysts and Hedge Funds Opinions

Wells Fargo & Company was downgraded by Zacks Investment Research from a “hold” rating to a “sell” rating in a research report issued on Monday, June 19th.

According to Zacks, “Wells Fargo’s shares underperformed the Zacks categorized Regional Banks-Major industry year to date. Elevated expenses and lower non-interest income remain concerns. Troubles have intensified following the bank’s $190-million settlement last year to resolve regulators’ claims of illegally opening millions of illegal accounts. While the current crisis at the company will take some time to alleviate, we believe that continued growth in loans and deposits and expansions should support its growth profile. Additionally, the company plans $4 billion of cost cuts by 2019. Moreover, recently approved the Financial Choice Act to eradicate a number of core financial regulations will act as a tailwind for the company in coming quarters. Notably, Wells Fargo hiked the prime lending rate to 4.25%, following the recent Fed rate hike.”

Several other analysts have also recently commented on the company…..

  • Evercore ISI dropped their price target on shares of Wells Fargo & Company from $60.00 to $58.00 and set an “outperform” rating on the stock in a research note on Friday, May 12th.
  • Credit Suisse Group reissued a “hold” rating and issued a $56.00 price target on shares of Wells Fargo & Company in a research note on Friday, March 3rd.
  • Piper Jaffray Companies raised shares of Wells Fargo & Company from an “underweight” rating to a “neutral” rating and lifted their price target for the company from $54.84 to $55.00 in a research note on Monday, April 10th.
  • Jefferies Group LLC reissued a “hold” rating and issued a $62.00 price target on shares of Wells Fargo & Company in a research note on Monday, May 8th.
  • Finally, Keefe, Bruyette & Woods restated an “outperform” rating and issued a $40.00 price objective (up previously from $35.00) on shares of Wells Fargo & Company in a report on Friday, April 14th.

Five research analysts have rated the stock with a sell rating, thirteen have assigned a hold rating, sixteen have issued a buy rating and one has issued a strong buy rating to the company’s stock. The company presently has an average rating of “Hold” and a consensus target price of $55.41.

Several institutional investors have recently made changes to their positions in the stock…..

Since March 3, 2017, WFC has had 1 buying transaction, and 7 selling transactions for $397.31 million activity.

  • Spc Financial Inc decreased Wells Fargo & stake by 84.34% reported in 2016Q4 SEC filing.
  • Old Second National Bank Of Aurora decreased its stake in Wells Fargo & Co New (WFC) by 95.46% based on its latest 2016Q4 regulatory filing with the SEC.

Also,since March 3, 2017,

  • BERKSHIRE HATHAWAY INC also sold $383.92M worth of Wells Fargo & Co (NYSE:WFC) on Monday, April 10.
  • $6.95 million worth of Wells Fargo & Co (NYSE:WFC) was sold by CARROLL DAVID M.
  • 24,708 shares were sold by Pelos Petros G, worth $1.34 million on Monday, June 12.
  • $2.05M worth of stock was sold by Mack Mary T on Thursday, June 8.
  • Loughlin Michael J had sold 20,000 shares worth $1.04M.

Harvey’s Options Volatility Indicator


Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..


** OPTION TRADE: Buy the WFC AUG 18 2017 55.000 PUT at approximately $1.20. Place a pre-determined sell at $2.40.

Note: No protective stop losses added -- but if you wish to do so make it $0.50.

”Success is simple. Do what's right, the right way, at the right time.”

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Options traders win because they are successful.

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