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Note: The Biotech Stock already made its big move. This is another recent idea we made in WFC targeting almost 300% returns.

April 16, 2024

Trade Idea: WFC $56.97 (Wells Fargo)

Buy July 19th $60 Calls for $1.80

TI WFC chart Winning Picks 041624

Wells Fargo is one of the biggest banks in the country. It generally trades similar to JPM, C, and BAC.

The company reported earnings along with the rest of the banks last week and has outperformed the group since. Take a look … WFC (Black), JPM (Red), C (Blue), BAC (Green):

TI WFC competitors chart Winning Picks 041624

The outperformance wasn’t because WFC crushed earnings. They were simply just ok, showing the same pockets of strengths (investment banking, trading) and weaknesses (Net-Interest Income) as their competitors.

So, what gives?

The Asset Cap

The Fed imposed a $1.95 Trillion asset cap in 2018 as a response to the bank’s 2016 fake-accounts scandal. This cap has stymied growth because the bank cannot take in more deposits, which would allow them to expand their lending book.

That said, the company is forced to use most of its profits to return capital to shareholders via buybacks and dividends. Not a bad thing.

In addition, this asset cap forced management to do a complete operational review to cut costs across all product lines and set themselves up to come out well-prepared when the cap is lifted.

What type of growth can we see?

Since 2018, here is a snapshot of the big bank’s assets in $Trillions:

             2024               2018               Change

WFC     $1.95               $1.93               +$0.02
JPM     $3.88               $2.62               +$1.24

BAC      $3.18               $2.35               +$0.83
C           $2.41               $1.92               +$0.49

Notice, there are $Trillions up for grabs once WFC is free to go after new deposits.

The main question is: When will the Fed lift the asset cap?

Almost Over

It’s anyone’s guess when the Fed will lift the asset cap. However, it’s been over 5 years of punishment for the bank.

They have adopted and implemented an overhaul plan that was reportedly approved by the Fed two years ago. The last hurdle is a third-party review.

Now, while management does not give any indication of timing on the conference calls, a Bloomberg source in November mentioned a timeframe in early 2025, noting it was undergoing the third-party review.

Clearly, any announcement lifting the asset-cap would see WFC jump.

The Trade

There’s been plenty of options flow leading up to this earnings report, including several roll-ups of 50,000 calls from the April $52.50 Calls to the $57.50 Calls and then into the last leg of April $60 Calls for $1.14 that didn’t pay off. Nevertheless, with an RR$ of $63.39 it gives you an idea of how high they were thinking … $64-$65.

The big money has also been buying January 2025 Calls all the way up, even paying up to $2.50 for the January $65 Calls.

Considering how the stock is holding the line up here, it appears investors aren’t waiting for the Fed to release the asset cap. They are accumulating the stock in anticipation of WFC the “growth stock.” 

I like the WFC July 19th $60 Calls for $1.80. The Target Stock Price is $67 on a breakout.

The risk is the same risk facing the whole banking system – Commercial Real Estate. We just don’t know the timing there.

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The Results Are In...

4th Quarter 2024 Results
Oct. 1st - Dec. 31st

28 Trade Ideas were given during this period with 19 reaching Triple-Digit Returns, or 68%. One Trade Idea is still pending. Of the 9 Trade Ideas that did not reach 100%, 6 of them were Puts.  

+1,351%   TSM Calls
   +738%   IOVA Calls
   +525%   NVO Calls
   +480%   OSTK Calls Spreads
   +449%   UBER Calls
   +408%   INTC Calls
   +250%   SPY Put Spreads
   +212%   AEO Calls
   +191%   JPM Call Spreads
   +154%   MGM Calls
   +150%   PYPL Calls
   +132%   MGM Calls
   +129%   LVS Calls
   +120%   GLD Call Spreads
   +115%   KVUE Call Spreads
   +111%   VRT Call Spreads
   +110%   INTC Puts Spreads
   +108%   MGM Calls 108%
   +100%   AFRM Calls

This presentation is for educational purposes only and is not a recommendation or endorsement of any particular investment or investment strategy. Past performance does not indicate or guarantee future success. Returns will vary and all investments involve risks, including loss of principal.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained by contacting your broker, The Options Industry Council at One North Wacker Drive, Chicago, IL 60606, or by visiting www.OptionsEducation.org.

Felix Frey Is not registered as an investment adviser nor a broker/dealer with either the U.S. Securities and Exchange Commission or any state securities regulatory authority. All users of this video and/or website must determine for themselves what specific investments to make or not to make and are urged to consult with their own independent financial advisors with respect to any investment decision. The viewer bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. All opinions, analysis and information included on this report, video and/or website are based on sources believed to be reliable and written or produced in good faith, but should be independently verified, and no representation or warranty of any kind, express or implied, is made, including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, I undertake no responsibility to notify such opinions, analysis or information or to keep such opinions, analysis, or information current. Also be aware that owners, employees, writers, or producers of and for Felix Frey or OptionsGeek,LLC. may have long or short positions in securities that may be discussed on this report, video and/or website. Past results are not indicative of future profits.


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