Regional bank Flagstar Financial (FLG) is up over 25% in the past year. One trader is betting on further gains in the months ahead.
That’s based on the June $13 calls. With 52 days until expiration, 15,369 contracts traded compared to a prior open interest of 106, for a massive 145-fold rise in volume on the trade. The buyer of the calls paid $0.35 to make the bullish bet.
Flagstar shares recently traded for just under $12, so the stock would need to rise by at least $1.00, or just over 9%, for the options to move in-the-money. The strike price is well under Flagstar’s 52-week high of $13.35.
Even with the rally in shares, Flagstar trades for about 0.6 times its book value, which for a bank tends to measure the value of its outstanding loans. Plus, shares trade at less than 8 times forward earnings estimates, a sign that the stock is undervalued here.
Action to take: Flagstar shares have been volatile in recent weeks, and buying in the $12 range looks attractive for some upside in the coming months. The bank also pays a 0.4% dividend at today’s prices, after cutting its payout over the past year.
For traders, the June $13 calls play well given the improving market conditions for stocks overall, and for further upside in the market. Given the low price of the option, traders could likely see high double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.