【Options Strategy】Q2 Earnings season outlook for U.S. banks

Major U.S. banks, such as JPMorgan Chase, Wells Fargo, and Citigroup, will commence reporting their second-quarter results on July 14. Heading into the earnings season for the second quarter, banks are faced with low expectations as earnings have yet to make a significant recovery since the eruption of the regional banking crisis in March. The prevailing market sentiment towards bank stocks is excessively negative, but robust net interest income will likely surprise investors and offset the weakness in capital markets.

US banking stocks have been among the best-performing sectors in the past week, indicating that investors may be positioning themselves for a positive earnings and outlook surprise from US banks. The future performance of US banks largely depends on whether the U.S. economy enters a recession or experiences a sustained rise in unemployment.

However, US banks' balance sheet has been negatively affected by higher interest rates due to unrealized losses on a portfolio of bonds transitioning from available-for-sale to hold-to-maturity. This has placed US banks in a more conservative position in terms of extending credit and expanding its balance sheet. The regional banking crisis, triggered by the failure of Silicon Valley Bank in March, has raised capital requirements and the cost of capital for banks. Consequently, forward price-to-earnings ratios for U.S. financial stocks have declined relative to the broader stock market. The expected earnings of U.S. financial firms have decreased by 11% this year, with only a slight recovery from the shock of the banking crisis in March.

$Citigroup(C)$

Citigroup is scheduled to report earnings on 14-Jul-2023. The last time Citigroup reported earnings on 14-Apr-2023, the stock increased by 4.8%.

As you can see from the table below, the data displays the percentage moves had for the last 12 quarters around earnings. The 3 day run up into earnings is notable as it shows that the stock increased 75% of the time for an average gain of 1.2%. That was actually a better bullish play than holding C through earnings that saw a 0.4%.

Trade Ideas:

Credit Put Spread

• sell $C 20230714 44.0 PUT$

• buy $C 20230714 42.5 PUT$

Short 25-Delta Put

• sell $C 20230714 44.0 PUT$

Key trades from tigerPC:

$JPMorgan Chase(JPM)$

JPM is scheduled to report earnings on 14-Jul-2023. The last time JPMorgan Chase reported earnings on 14-Apr-2023, the stock increased by 7.6%.

As you can see from the table below, the data displays the percentage moves had for the last 12 quarters around earnings. The 3 day run up into earnings is notable as it shows that the stock increased 75% of the time for an average gain of 1.2%. That was actually a better bullish play than holding JPM through earnings that saw a -0.8% decline.

Trade Ideas:

Credit Put Spread

• sell $JPM 20230714 143.0 PUT$

• buy $JPM 20230714 139.0 PUT$

Short 25-Delta Put

• sell $JPM 20230714 140.0 PUT$

Key trades from tigerPC:

$Wells Fargo(WFC)$

WFC is scheduled to report earnings on 14-Jul-2023. The last time WFC Chase reported earnings on 14-Apr-2023, the stock declined by -0.1%.

As you can see from the table below, the data displays the percentage moves had for the last 12 quarters around earnings. The 3 day run up into earnings is notable as it shows that the stock increased 58% of the time for an average gain of 0.6%. That was actually a better bullish play than holding WFC through earnings that saw a 0%.

Trade Ideas:

Short 25-Delta Put

• sell $WFC 20230714 41.5 PUT$

Key trades from tigerPC:

$Bank of America(BAC)$

Bank of America is scheduled to report earnings on 18-Jul-2023. The last time Bank of America reported earnings on 14-Apr-2023, the stock increased by 0.6%.

As you can see from the table below, the data displays the percentage moves had for the last 12 quarters around earnings. The 3 day run up into earnings is notable as it shows that the stock increased 50% of the time for an average gain of 0.5%.

Trade Ideas:

Short 25-Delta Put

• sell $BAC 20230714 27.5 PUT$

Key trades from tigerPC: