Options Trading Ideas in Fifth Third Bancorp (FITB): a Bull Put Spread and a Bear Put Spread
In a recent edition of CNBC’s Mad Money, Jim Cramer had some nice things to say about Fifth Third Bancorp (NASDAQ: FITB) and other regional banks. He labeled FITB as a “buy” and noted that as the stocks of regional banks go higher, “they get more money.”
On “Mad Money,” Cramer is limited to the buy-hold-sell scale (and variations thereof). But what about investors who are just moderately bullish or those who are bearish but don’t want to take on the risk of a short sale? These situations – and many others – are where options might be utilized.
For its part, FITB have rallied nearly 350% over the past 52 weeks (and still has potential upside, according to Cramer). At Tuesday’s close, FITB shares were trading at $14.35.
Based on this information, two options strategies are outlined below – one for moderately bullish traders and one for the moderately bearish. These are not buy-sell-hold recommendations, but hypothetical demonstrations of how option trades can be useful in certain situations. Always maintain good trading discipline by conducting your own research and considering your risk/reward tolerance before opening any trade.
*Option prices given as of Wednesday morning
Bullish Option Strategy: Bull Put Spread
Investors who agree with Cramer’s take could look at a longer-dated bull put spread. The January 17.50/15 put spread is currently priced at $1.50 (by selling the 17.50 put and simultaneously buying the 15 put, collecting a net credit). If FITB has moved above $17.50 by the time these options expire next January, the spread seller will keep 100% of this premium as profit. Breakeven is $16.00, so the spread will be profitable at expiration anywhere above this level. The maximum potential loss (which occurs if FITB is below $15 at expiration) is $1.00, or the difference in strike prices minus the credit collected.
Bearish Option Strategy: Bear Put Spread
Traders who feel Fifth Third’s bull run may be coming an end may consider a bear put spread. The August 12/16 spread is priced around $1.80 (by buying the 16 put and subsequently selling the 12 put, paying a net debit). The spread buyer risks 100% of the premium paid if FITB is trading above $16 when the options expire. The maximum potential profit, meanwhile, is $2.20, and can be collected if FITB is below $12 at expiration. Breakeven at expiration is $14.20; anywhere below this level, the spread is profitable.
Have Your Say
Fifth Third shares have had an amazing run … will the trend be your friend or are you expecting a pullback? How would you trade Fifth Third at its current levels (or would you)?
To learn more about OptionsHouse see our commission plans for stock options, or if you are new to options trading, practice your trades in a virtual trading account.
Photo Credit: codepoet
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