Banking

Use Options To Gauge How Much Bank Stocks Will Move On Earnings

Earnings season kicks into high gear this week with the big banks all reporting. 




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We have JPMorgan Chase (JPM) announcing on Wednesday, then CitigroupBank of America (BAC), Wells Fargo (WFC) and Morgan Stanley (MS) on Thursday. Goldman Sachs (GS) and PNC Financial Services (PNC) report on Friday. 

It is shaping up to be a busy week. 

Those who are wondering what sort of stock moves we might see can use the options market to gain insight into the market’s expectations. 

We can use what is called the expected move. This tells us the market’s expected range for an underlying stock for a specific period. 

The quickest way to work out the expected move is to look up the option chain and add together the price of the at-the-money put option and the at-the-money call option. We use the first expiry date after the earnings date. 

While this approach isn’t as accurate as a detailed calculation, it does serve as a reasonably accurate estimate. 

Bank Stock Expected Moves This Week

JPM stock options indicate an expected move of around 2.9%. The stock has stayed within the expected range the last six times. 

Citigroup options are pricing in a 3.3% move. Citigroup stock has stayed within the range four out of the last six times. 

Bank of America stock options are implying a 3.5% move. Bank of America has also stayed within the expected range four out of the last six times. 

Option traders in WFC stock expect slightly bigger moves, with the range expected to be around 4.4%. Wells Fargo stock has only stayed within the expected range three out of the last six times. 

Morgan Stanley stock options indicate an expected move of around 4.1%. The stock has stayed within the expected range six times in a row. 

PNC, Goldman Sachs Expected Moves Around 3.5%

Options for PNC are pricing in a 3.5% move. PNC has stayed within the expected range five out of the last six times. 

Goldman Sachs options indicate an expected move of around 3.4%. The last six earnings announcements have seen Goldman stock stay within the expected range. 

Bank stocks and other financials have been performing well, with many near new highs. Goldman and Wells Fargo are forming bases. PNC is trying to break out past a 203.98 buy point.

Good luck this week, traders. 

Please remember that options are risky, and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions. 

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ 

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