Mega-Cap Active Options Update: Bearish Option Activity in Financials

There’s  a familiar recent market axiom something along the lines of, “As go the financials, so goes the market.”  ONN.tv Chief Investment Strategist Jud Pyle pointed out a few minutes ago that this is certainly not holding true today! The broader market is enjoying a relatively solid, broad-based rally, but the financial sector is the one group left out in the cold. The Financial Select Sector SPDR (XLF) is currently the only Sector SPDR in the red.

Overall sentiment is rather downbeat on the banking sector and a recent note from JP Morgan indicated that big banks are scaling back lending activities and ramping up cash to cover lingering credit losses.

Two big names in the financial group saw notable options activity shortly after the opening bell. Bank of America (BAC) has seen more than 25,000 contracts trade on the May 20 call, out-of-the-money by more than four bucks. Open interest at this strike was 61,460 heading into today’s session.

The stock is currently up a fraction while the calls are slightly lower; this disparity is indicative of a seller. At 9:48 AM Eastern, one investor sold 25,000 of these calls at 75 cents per contract, making the block worth nearly $1.9 million.

Meanwhile, we are seeing put buying activity on Wells Fargo (WFC). The January 22.50 put – out of the money by nearly 20% – has seen volume of more than 10,000 contracts today on open interest of 64,241. Shortly after 10:00 AM Eastern Time, a block of 8,818 contracts hit the tape at 27 cents per contract, the ask price at the time.

This demand for puts contributed to a quick-and-dirty pullback in the shares, as illustrated by its intraday chart. Right as traders were scooping up these puts, the stock was in sharp decline mode. Currently, WFC shares are off 13 cents, or about half a percent, at $27.92.