Wachovia (WB, $17.65, up $0.86) was up another 5% yesterday following Tuesday’s massive 29% gain despite an earnings report that I still find hard to fathom. The stock hit a low of $11.65 right after Tuesday’s anouncement of a $9 billion loss, rebounded that same day, and hit a high of $19.55 on Wednesday. Wachovia was expected to post a loss of $0.78 a share and came in at a loss of $1.27. I’ve heard of short-covering and even the “naked” short selling is being addressed but for Wachovia to post these kinds of gains, the shorts must be convinced that some sort of rally will hold.

Too bad for us because the whipsaw action has taken us out of some exceptional trades. The Wachovia January 15 calls (WBAC, $5.40, up $0.91) were profiled at $1.30 and were trading at $2.15 before the earnings announcement on Tuesday. When Wachovia opened lower to start the session the puts opened lower and then rebounded strongly. The exit point was $2.60 but some of you probably left the position open.

As fate would have it, Wachovia has rebounded for all the wrong reasons but for those of you that held onto the January 15 calls, continue to enjoy it. The calls hit a high of $6.30 for the day so many of you are looking at 200%-300% gains. Just make sure you set stops again as the calls will certainly continue to make wild price swings.

Interesting too was the action in the October 17.50 calls (WBJA, $3.00, up $0.65) yesterday. They opened the session at $2.30 and traded as high as $4.00 as 18,000 contracts traded hands. They could also do well if Wachovia can continue its march higher.

Rick Rouse
Rick@OptionsMentoring.com