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Financial bulls turn to Wells Fargo

David Russell (david.russell@optionmonster.com)

Bank of America led the way, and now Wells Fargo is following.

BAC was the first major financial to light up optionMONSTER's Heat Seeker scanning program and was hugely profitable in the short term. WFC's activity took a much longer time horizon.

This time the Heat Seeker showed the purchase of about 19,500 January 2016 45 calls for $4.20. The trader sold a similar number of January 2015 40 calls for $5.70 seconds later, but that volume was below previous open interest. This suggests that an existing position was rolled out in time and up in strike.

Long calls lock in the price where a stock can be purchased, letting investors cheaply position for upside. In the case of yesterday's trade, he or she collected $1.50 by making the adjustment and now has an additional year to ride the shares higher. (See our Education section for more on how options can be used to manage trades more effectively.)

WFC rose 1.05 percent to $44.08 yesterday. It broke out to new all-time highs in May and has been consolidating above those levels since. Financials have emerged as the strongest sector within the S&P 500 this week following months of underperformance.

Total option volume was more than twice the daily average in WFC yesterday, with calls outnumbering puts by a bullish 4-to-1 ratio.

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