Unusual Options Activity: UBS Group AG (UBS)

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  • Shares of Swiss bank UBS Group AG (UBS) had a decent day on Tuesday, as the bank reported its strongest third-quarter earnings in a decade. Traders see more upside ahead.

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  • That’s shown by the 16-fold rise in volume on the August 2021 $12.50 calls. The options saw over 1,650 contracts trade against a prior interest of 101. The option is at-the-money, meaning the trade should rise dollar for dollar with any move higher in the bank’s stock.

    The option expires in 303 days, so there’s plenty of time for the trade to play out. And the option buyer paid about $1.20, or just under one tenth the price of shares to make the bet.

    Shares of the bank stock have now surged to their post-crash highs, a level that the company has traded at during most of the summer. A new breakout may be imminent over the next few months, making for solid profits with a call option trade.

    Action to take: While bank stocks may not seem like an obvious candidate for a huge rally, the price paid for these options, which have nearly 10 months to play out, is relatively low for an at-the-money play. These options could easily double or triple if the bank shares rally, and the downside is somewhat minimal. The trade coming post-earnings is also a good sign for longer-term traders as well.

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  • All these factors make this option trade one worth following for its high reward relative to the risk.