Brazilian financial services platform XP (XP) had a big day in the options market on Wednesday, with volume of 251,277, nearly 13 times the 30-day average. Meanwhile, XP's share volume yesterday was more than a million below the 30-day average.
Wednesday's unusual options activity provides a clue as to why XP's options volume was off the charts, the stock's highest daily volume in the past two years.
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XP had the third-highest Vol/OI (volume-to-open-interest) ratio on the day at 56.49. Volume for the Nov. 20 $25 call was 120,105, 7,172 higher than XP's second-highest daily options volume over the past two years, on Jan. 21, 2025.
A closer look at the options flow suggests Blue Horseshoe -- a reference to the 1987 movie Wall Street -- loves XP, not Anacott Steel.
XP had four unusually active options yesterday, but I'm only interested in the $24 and $25 calls expiring on Nov. 20. A quick look at the options show fills provides additional context for what is at play here.
As you can see, these four trades accounted for 99.9% of the volume for the Nov. 20 $25 and Nov. 20 $24 calls on Wednesday, which also represented 95.5% of XP's total volume yesterday.
The options strategy at play here is a Bull Call Spread — a very bullish, moonshot bet by one institution that XP is ready to rocket higher in the next two months.
In the next section, I look at the bull call spread itself. Then I'll consider the possible reasons for the bet.
The bull call spread information for the Nov. 20 $24 and $25 calls at yesterday's close is shown above. As you can see, both strike prices are well OTM (out-of-the-money), hence the low 1-in-5 chance of making money on the bet.
The bull call spread is a defined-risk options strategy that involves buying the long $24 call for $1.15 and selling the short $25 call for $ 0.50 in premium, for a net debit of $0.65. That's also the maximum loss. The maximum profit is $0.35 [$25 strike price - $24 strike price - $0.65 net debit].
Why would someone make such a one-sided bet where the maximum profit percentage is just 53.85%, and the inverse risk/reward ratio is 1.86 to 1? That's a good question. Further, the move needed to break even is 24.75%. How likely is that? Not very. The expected move is 15.92%, well below what it needs to make bank.
Before blowing off this trade, consider it from the institution's standpoint.
It believes that XP will make a big move heading into earnings, set to be released on Nov. 16, four days before the calls expire. Very bullish, it decides to make a moonshot long call bet deep OTM, spending $8.4 million on 120,000 $24 calls. The expected move doesn't change just because it bought a bunch of long calls. It thinks twice, reasoning that it has to cover its butt, so it sells 120,000 $25 calls to lower the maximum loss possible by $6.6 million, or nearly 80%.
Sure, if XP flies 30% higher after announcing earnings, it will be kicking itself for covering the long calls. That's because it will have capped its profits at $1.8 million [120,000 contracts * $0.15 maximum profit * 100]. Whereas if it had gone long only, it would have made $11.86 million [$25.69 share price - $24 strike price - $0.70 net debit * 120,000 contracts * 100].
So, effectively, the institution is giving up 85% of the profit potential of the long calls to fight another day. I'd call that risk management.
I'm a huge bull for Latin American stocks. Have been for years. For many investors, the currency volatility and inflationary pressures have gotten in the way of investing more in the region. I believe that's changing. What happens in Venezuela over the next 12-24 months will certainly affect the potential upside. But for now, I remain bullish.
Three months ago, of the 10 analysts covering XP stock, five rated it a Strong Buy (3.80 out of 5); now seven rate it a Strong Buy (4.40 out of 5), with a target price of $23.04, 17% above yesterday's closing price, but below the $24.15 breakeven for the institution's big bull call spread bet.
Bloomberg reported at the end of July on XP founder and chairman Guilherme Benchimol's thoughts on Brazil's finances. He believes whoever is running the country needs to get its finances in order.
"'No country can run persistent fiscal deficits indefinitely,' he said. 'Eventually, it breaks down. You end up with runaway inflation, and it's the poorest people who suffer the most. Nobody has an interest in letting that happen,'" Bloomberg reported.
If you're unfamiliar with Brazil's financial situation, I'd recommend reading Bloomberg's piece, at least to better understand the issues I mentioned earlier that hold North American investors back.
XP continues to focus on growing its banking operations in Brazil. In Q2 2026, it had client assets of 1.54 trillion reais ($298 billion) spread across 4.77 million active clients, averaging 322,851 reais ($62,604).
The client assets increased by 12% in the second quarter compared to Q2 2025. Excluding market appreciation, they increased by 7.5%, which is still very healthy. Meanwhile, the number of active clients increased by 52,000, up 1% from a year ago. While 1% doesn't seem like much, each new client brings nearly $63,000 in assets. That adds up very quickly.
More importantly, XP has excellent revenue diversification.
Retail banking accounted for 76% of its 5.06 billion reais ($980.4 million) in Q2 2026 revenue, up 8% from a year ago. The retail banking business includes eight revenue streams, from equity trading to insurance to consumer loans.
Wholesale banking accounted for the remaining 24% of revenue, generated through three revenue streams: issuer services, corporate, and institutional. Its corporate business rose 117% in the quarter, and now accounts for 52% of wholesale banking revenue.
Despite SG&A (selling, general and administrative) expenses rising 9% in the quarter, EBT (earnings before taxes) rose faster, by 15%.
The bottom line: In early 2021, XP stock traded at an all-time high of $50.21. It can get back there in the next 2-3 years if it continues to grow its market share in Brazil.
As for yesterday's bull call spread, it's a bold move by the institution that made it. You might want to buy XP in a big way.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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