Market Insights

Synchrony Financial jumped on strong earnings last month, and options traders seem to think the move will continue.

Call volume in the consumer-lending company spiked to a four-year high yesterday, according to TradeStation data. Two contracts were especially active around the same time:

• 10,000 November 60 calls were purchased for an average premium of $0.98.
• 10,000 November 65 calls were sold for $0.23.
• That translates into a net cost of $0.75.

Calls fix the level where investors can purchase a security. They can appreciate when stocks rally but become worthless if prices don’t reach the strike price on expiration. Traders can also sell them to generate credit.

Volume yesterday was below open interest in the November 60s but not the 65s, so there are two possible explanations of the activity.

First, both legs might have been opened as part of a vertical spread. That would leverage a potential move to $65, earning 567 percent from the stock rising about 16 percent by November 15.

Second, the investor might own 1 million SYF shares. He or she could have previously sold the November 60s as part of a covered call and rolled the short position up by $5. Making the adjustment would create the potential for an additional $5 of upside if the stock rallies to $65.

Either way, the activity could be viewed bullishly because calls closer to the money with higher deltas were purchased.

Earnings Breakout

SYF rose 3.20 percent to $56.82 yesterday and is up 49 percent this year. It jumped to a record high on October 16 after beating earnings and revenue estimates. The company, once known as GE Capital, also raised its guidance after credit losses were lower than feared.

The stock has also pushed above its previous record high of $51.28 from late 2021. It initially challenged the peak in July before dipping along with the rest of the market. However it jumped back above the old peak a month ago and has remained there since.

It consolidated in the second half of October while holding new highs above $55. That could make some chart watchers expect further upside following the breakout.

Overall option volume was 11 times greater than average yesterday, with calls accounting for a bullish 88 percent of the total.

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