I just bought a July 25 call option on WFC for 3.14. Sentimentrader.com posted a comment yesterday detailing the banking index and shows that on comparable declines in the past there has been a 2 week gain of around 6% on average for the index. WFC is Wells Fargo Bank. There was a doji candlestick yesterday, which today has gapped up to form a morning star reversal pattern.
Also, the short interest has been skyrocketing in recent months as the stock bounces around above $25, which is the point of peak put open interest in June and July. Heavy out of the money put open interest can act as a floor for the decline, and if a rally occurs, I think it will be sharp because a short covering rally is likely to occur as the stock moves above the breakeven point for the cumulative short interest in the stock.
If this trade takes off, then I think it would be OK to hold till expiration, but I am planning on just a quick trade of a few days hopefully to get a nice bounce until the slow stochastics get overbought. The stop is 26.20 on a closing basis. I would anticipate about 50% or more return if successful.
The stock is cuurently around 27.35. Breakeven is 28.20 area.
Pete
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