Options traders are gearing up for more significant stock price fluctuations following the earnings reports of certain U.S. banks, even as the overall market’s volatility seems to be calming down.
Notable banks such as JPMorgan, Wells Fargo, and Citigroup will be revealing their financial results this Friday, while others like Goldman Sachs and Morgan Stanley are scheduled for the following week.
The prominent consumer banks in the U.S. are anticipated to announce increased profits for the third quarter, in contrast to investment banks, which are still dealing with a slowdown in dealmaking, as per analysts’ insights.
Based on options data, traders are preparing for bigger than usual stock price swings for Wells Fargo following its earnings report. These traders anticipate that the shares of the fourth largest U.S. bank may move approximately 4% in either direction by Friday.
This is higher than the typical 2.6% movement seen over the past eight quarters, according to data from options analytics service Trade Alert.
Wells Fargo, which has been reducing its workforce since the third quarter of 2020, might further reduce jobs as part of its efforts to enhance efficiency, as mentioned by Chief Financial Officer Mike Santomassimo in September.
Based on the options data, it appears that Goldman Sachs, Morgan Stanley, Bank of America, and Citigroup are expected to experience more significant post-earnings stock price swings than usual. This information comes from Trade Alert.
Steve Sosnick, the chief strategist at Interactive Brokers, commented on this situation, saying, “The implied volatilities are relatively high compared to these companies’ past earnings performance.” He added, “It’s important to note that they reflect some risk aversion at a time when the broader market seems to be returning to its more relaxed attitude.”
The Cboe Volatility Index, which tells us what investors anticipate regarding the S&P 500’s price fluctuations over the next month, dropped to 15.44, the lowest in three weeks. This is after it had jumped to 20.88 just a week ago.
Anticipations about how bank stocks might move have risen because exchange-traded funds that follow U.S. banks have seen significant capital withdrawals since the beginning of October.
This happened as the overall market sentiment turned more cautious, and investors started taking money off the table. They were concerned about the potential impact of higher interest rates and stricter regulations, especially in the wake of the issues faced by regional banks.
