$WFC calls bank more big gains

Option traders have tripled their money in Wells Fargo since Thanksgiving as the bank has rallied sharply despite a multitude of skeptics.

On Nov. 29, Investitute’s market scanners found that 2,000 Weekliy $56.50 calls expiring on Jan. 5 were purchased for $1.47 with shares at $56.53. These were clearly new positions, as open interest in the strike was only 195 contracts before the trades occurred.

Those calls sold for $5.25 today, more than 3.5 times their purchase price. The stock rose 9 percent in the same time period, reflecting the type of leverage that can be obtained with options. It was the second winning trade in Wells Fargo posted on Investitute in the last three weeks.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

WFC closed today off 0.1 percent to $61.55 after reaching an all-time high of $62.24 right after the opening bell. Buckingham upgraded the bank to “buy” from “neutral” and raised its price target to $75 from $57 yesterday.