If you were following the market into the close, things didn’t exactly go that smoothly for the bulls as the "bidless beast" appeared and the S&P tested new lows. Prior to the sell-off, Wells Fargo & Co (NYSE: WFC) saw a large option trade appear that put in it’s top about 30 minutes before the close. Interesting timing and trade as the market wilted.
SPX Bidless Beast
You may be wondering what is meant by the ‘bidless beast.” It might help to start with what a bid is. When you bid on something, you’re wanting to purchase something. In stock terms, the Bid is the highest price someone is willing to pay for a certain number of shares.
What happens when there is a sudden failure of buyers willing to show up and buy at market? Well, the beast appears, and the market falls under its own weight. For a quick example, here is a price chart of the S&P 500 Index as it traded into the close.
You may notice that the pace of selling accelerated into the close as the candles continued to get longer. The lack of a bid was very clear for the S&P 500 stocks.
WFC Option Activity
WFC didn’t see the same degree of selling as the broader market. However, the option activity was something we discussed in my Trader by Your Side chat. We began looking at it just as the market was beginning to sell-off. WFC is significant as a financial stock since these stocks will be a big participant in a broader sell-off.
Let’s take a closer look at the option activity on WFC:
- 16,000 14 APR 22 $40 puts BOT in 1 print @ $0.68
- 16,000 14 APR 22 $32.50 puts sold in 1 print @ $0.21
When you see a trade like this, you may be thinking a long put vertical. However, in this case, the open interest was over 16,000 for the April $32.50. That would indicate that the $32.50 calls were closed, and the $40 puts were bought. That means that a significant position was rolled up from the $32.50 to the $40 strike. The roll-up is done as a debit and is an indication of near-term bearish interest.
Conclusion
The timing of this roll, the type of stock that was traded, and the sell-off into the close came together nicely. This is the type of indication that following option activity can provide. In this case, a follow-through in financials to the downside could be a big tell that the market may be headed lower.
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