[Options] Back to the Wells

Sean McLaughlin
January 29, 2024

We got stopped out of a Wells Fargo trade a couple of weeks ago, and it looks like that was the whipsaw it needed to shake weak hands out. And since I was shaken out, I consider myself among the weak hands squad. I'm ok with that.

But given what we've seen since we were stopped out, we're getting back in for another try. This time, with tighter risk management and a longer runway.

Here's a chart of $WFC as it stands now:

As you can see, the stock is back at the upper end of the prices we experienced in December. And we feel the stock is about to make a move back towards long-term resistance around $60 per share. And if it clears that level? We could get a banking moon. (A much more sedated version of a crypto moon).

So with implied volatility in $WFC options near its lowest levels of the year, this means we can "cheaply" position in longer-dated calls.

Here's the Play:

I like buying $WFC January (2025) 60-strike calls for approximately $1.75 per contract. This debit I pay today is the most I can lose in this trade if I'm dead wrong, but I plan to exit much sooner than that.

I'll exit this position if either $WFC shares see a closing price below $48 per contract, or the calls lose 50% of their value -- whichever happens first. In either case, I'm either wrong or early. The end result is the same - I lost.

In the meantime, if $WFC follows through to the upside, then I'll look to take some of my position off if/when $WFC trades up to or through $60 per share. I'll take enough off to pay me back for my original investment, then hold on to the rest to see what else the market has to offer us.

For more color on this trade, me and Steve Strazza got into it during the live Flow Show today.

If you have any questions on this trade, please send them here.

If you missed last week’s video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

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