WFC

O

oldnemesis

http://www.nytimes.com/2016/09/09/b...rgo-fined-for-years-of-harm-to-customers.html

https://www.bloomberg.com/gadfly/ar...ffett-s-silence-on-wells-fargo-speaks-volumes

http://stockcharts.com/h-sc/ui?s=wfc

Trade:
With WFC at 46.96
Jun '17 55/60 bear call spread for a net credit of $45
Yield = 45/455 = 9.9% in 276 days or 13.1% annualized
Prob = 82.8%
Expectation = .83(45) - .07(455) - .1(228) = 37.4 - 31.9 - 22.8 = -17.3

Price........ Profit / Loss........ ROM %
35.22.............. 45.00.............. 9.90%
45.00.............. 45.00.............. 9.90%
50.00.............. 45.00.............. 9.90%
55.00.............. 45.00.............. 9.90%
55.45................ 0.00.............. 0.00%
58.93............ (347.70)......... -69.54%
60.00............ (455.00)......... -90.10%
65.00............ (455.00)......... -90.10%
75.00............ (455.00)......... -90.10%
 
Frankly I didn't know what I was doing either. My thought was: if I am a contrarian and think WFC's drop is market overreaction, that the stock price will move back up in the near future, why don't I go bullish and do a bull spread?

If I were to bet against the market, what is the best approach?
 
ironchef said:
Frankly I didn't know what I was doing either. My thought was: if I am a contrarian and think WFC's drop is market overreaction, that the stock price will move back up in the near future, why don't I go bullish and do a bull spread?

If I were to bet against the market, what is the best approach?
More...


http://stockcharts.com/h-sc/ui?s=wfc

With WFC at 45.31
Trade 1
Jan '17 43/46 bull call spread for a net debit of $187
Yield = 113/187 = 60.47% in 114 days
Price............ Profit / Loss ............ROI %
32.25............... (187.00)............ -100.00%
37.10............... (187.00)............ -100.00%
42.20............... (187.00)............ -100.00%
43.00............... (187.00)............ -100.00%
44.87.................... 0.00.................. 0.00%
46.00................ 113.00................. 60.43%
47.30................ 113.00................. 60.43%
52.40................ 113.00................. 60.43%
57.50................ 113.00................. 60.43%

Trade 2

Jan '17 45/48 bull call spread for a net debit of $130
Yield = 170/130 = 131% in 114 days

Price.............. Profit / Loss........... ROI %
33.75................. (130.00)............ -100.00%
38.79................. (130.00)............ -100.00%
44.09................. (130.00)............ -100.00%
45.00................. (130.00)............ -100.00%
46.30...................... 0.00.................. 0.00%
48.00................... 170.00............... 130.77%
49.39................... 170.00............... 130.77%
54.70................... 170.00............... 130.77%
60.00................... 170.00............... 130.77%

Both trades hypothesize we have bottomed and there will be a bounce. A very minimal one in trade #1, a larger one in trade #2.

Some people will see the previous bottoming on June 27 as support for the bottom hypothesis... the bounce is pure speculation.

Here's a different bottom based trade:

Jan '17 40/36 bull put spread for a net credit of $34
Yield = 34/366 = 9.3% in 114 days

Price.............. Profit / Loss........ ROM %
27.00................. (366.00)............ -91.50%
32.69................. (366.00)............ -91.50%
36.00................. (366.00)............ -91.50%
38.68................... (98.50)............ -24.63%
39.66...................... 0.00................ 0.00%
40.00..................... 34.00............... 9.30%
44.66..................... 34.00............... 9.30%
50.65..................... 34.00............... 9.30%
56.64..................... 34.00............... 9.30%

no bounce is necessary, a little bit of down drift would be accommodated.

I haven't computed any prob or expectation as these calculations are especially
inappropriate at this juncture for this stock.
 
Last edited:
oldnemesis said:
http://stockcharts.com/h-sc/ui?s=wfc

With WFC at 45.31
Trade 1
Jan '17 43/46 bull call spread for a net debit of $187
Yield = 113/187 = 60.47% in 114 days
Price............ Profit / Loss ............ROI %
32.25............... (187.00)............ -100.00%
37.10............... (187.00)............ -100.00%
42.20............... (187.00)............ -100.00%
43.00............... (187.00)............ -100.00%
44.87.................... 0.00.................. 0.00%
46.00................ 113.00................. 60.43%
47.30................ 113.00................. 60.43%
52.40................ 113.00................. 60.43%
57.50................ 113.00................. 60.43%

Trade 2

Jan '17 45/48 bull call spread for a net debit of $130
Yield = 170/130 = 131% in 114 days

Price.............. Profit / Loss........... ROI %
33.75................. (130.00)............ -100.00%
38.79................. (130.00)............ -100.00%
44.09................. (130.00)............ -100.00%
45.00................. (130.00)............ -100.00%
46.30...................... 0.00.................. 0.00%
48.00................... 170.00............... 130.77%
49.39................... 170.00............... 130.77%
54.70................... 170.00............... 130.77%
60.00................... 170.00............... 130.77%

Both trades hypothesize we have bottomed and there will be a bounce. A very minimal one in trade #1, a larger one in trade #2.

Some people will see the previous bottoming on June 27 as support for the bottom hypothesis... the bounce is pure speculation.

Here's a different bottom based trade:

Jan '17 40/36 bull put spread for a net credit of $34
Yield = 34/366 = 9.3% in 114 days

Price.............. Profit / Loss........ ROM %
27.00................. (366.00)............ -91.50%
32.69................. (366.00)............ -91.50%
36.00................. (366.00)............ -91.50%
38.68................... (98.50)............ -24.63%
39.66...................... 0.00................ 0.00%
40.00..................... 34.00............... 9.30%
44.66..................... 34.00............... 9.30%
50.65..................... 34.00............... 9.30%
56.64..................... 34.00............... 9.30%

no bounce is necessary, a little bit of down drift would be accommodated.

I haven't computed any prob or expectation as these calculations are especially
inappropriate at this juncture for this stock.
More...
Thanks for the suggestions. Of course I have the luxury of waiting to see how things would unfold. However, just my casually looking at the prices, there seemed to be support at ~$45. Also, at $45 PE is ~11.2, on the low side for this stock.

Disclosure: WFC is one of my long term stocks.

Regards,
 
You must log in or register to reply here.
Back
Top