Wells Fargo (WFC, $25.01, up $4.51) is having a huge day after reporting earnings of $1.75 billion, or $0.53 a share, compared with $2.28 billion or $0.67 a share in the same period a year ago. Wall Street was looking for a profit of $0.49 a share.

Although Wells Fargo’s profits fell 23% from a year earlier, the market is clearly looking at the fact that the Financial stocks may have hit a bottom. Wells also raised its quarterly dividend 10%, to $0.34 a share from $0.31 a share.

It would have been a bold bet but for those who bought calls ahead of this announcement have done well today. The July 20 calls (WFCGD, $7.00, up $5.60) which closed at $1.40 yesterday are up 400%. The July 25 calls (WFCGE, $2.40, up $2.30) which were way out-of-the-money are up a staggering 2,300%.

I’m not sure how long Wells Fargo will hold up or if we will see a continued rally in the stock but option traders are targeting the August 25 calls (WFCHE, $3.10, $2.70) just in case. Over 40,000 contracts have traded so far as they are up 725% for the day.

Rick Rouse
Rick@OptionsMentoring.com