Fifth Third Option Players Forecast a Short-Term Surge

Schaeffer's Investment Research
  JAN 16, 2013 4:40 PM

Calls are the options of choice on FITB ahead of tomorrow's earnings report.


Option players are placing some last-minute bullish bets on Fifth Third Bancorp (NASDAQ:FITB) ahead of tomorrow's quarterly earnings announcement. Of the roughly 6,600 calls that have crossed the tape as of 2:46 p.m. EST, more than 4,000 have traded at FITB's January 2013 16 strike. The majority of these have changed hands at the ask price, implied volatility was last seen 4.8 percentage points higher, and volume is outstripping open interest, indicating buy-to-open activity.

By purchasing these out-the-money calls to open for a volume-weighted average price (VWAP) of $0.09, traders will begin to profit with each step north of $16.09 (strike price plus VWAP) FITB takes through the close on Friday, at which point front-month options will expire. This breakeven level represents a 3.4% premium to the stock's current perch.

Today's rush toward calls is just more of the same for option players, though, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the course of the past 50 sessions, speculators have bought to open nearly four calls for every put on FITB. The resultant call/put volume ratio of 3.66 ranks just eight percentage points from a 52-week peak, suggesting bullish bets have been scooped up over bearish at a near annual-high clip during the past 10 weeks.

Technically, the stock has fared well in recent months, with the shares up around 13% from their most recent low of $13.75, which was tagged on November 15. Additionally, FITB has been stair-stepping steadily higher since mid-December with the help of its 20-day moving average.

While the equity has enjoyed a recent bout of positive price action, over the long term, FITB has not closed above the $16 mark on a weekly basis since September 2008. Should the stock fail to conquer this looming layer of resistance by week's end, the most today's call buyers have risked is the initial premium paid.

As touched upon, the regional banking concern is due to unveil its earnings report ahead of tomorrow's opening bell. The company has a mixed history in the confessional, besting analysts' bottom-line expectations in two of the last four quarters. For FITB's fourth quarter, Wall Street has forecast a per-share profit of $.41.

This article by  Karee Venema was originally published on Schaeffer's Investment Research.

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