Wells Fargo (WFC) is announcing earnings and probably forward guidance before the market opens on Wednesday. WFC was up over 10% today and I took that opportunity to buy Nov 33 put options in the company because I see a lot of downward pressure on the stock over the coming weeks. The market rally on Monday will be remembered as a day that you should have taken profits because there is a lot more downside to this market as the economy continues its decline.

Wells Fargo will undoubtedly benefit from the federal government’s bailout plan and will be receiving a large investment in soon-to-be-issued preferred shares to the feds as well. However, I don’t see these actions as benefitting the shareholders in the near-term, especially because WFC will likely need to dilute shares further with a common stock offering to raise capital. That dilution and any surprises could easily push the stock down into the 20′s and create a large profit on the Nov 33 puts.

[tags]wells fargo, put option, earnings announcement, shaun carter, banks, financials, investing, stock market, options, bailout[/tags]