2 Trades on Blue-Chip Financials (JPM, WFC)

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Financials have been hot the past two years, with the Financial SPDR (XLF) gaining roughly 50% since the start of 2013. The group is set to take center stage this week, as a slew of financial firms set up to release their quarterly reports.

wells fargo earnings wfc stockAmong the highlights early in the week are industry giants Wells Fargo & Co (WFC) and JPMorgan Chase & Co. (JPM). We’ll take a look at what the Street expects, as well as a couple trades you can make before earnings.

Wells Fargo & Co (WFC)

Wells Fargo leads the financials into the limelight ahead of the open on Wednesday, Jan. 14. Wall Street is expecting a third-quarter profit of $1.02 per share from the banking concern, but the whisper number arrives a penny higher, according to EarningsWhisper.com.

“Whispers” are all WFC stock is going to get from the brokerage community, however, as data from Thomson/First Call reveals that the stock has attracted just 11 “buy” ratings, compared to 16 “holds” and one outright “sell.” Additionally, the 12-month consensus price target of $55 per share rests a mere 4.4% above WFC stock’s close at $52.68 on Friday.

Options traders have set up shop in the bears’ camp for WFC stock, too. Specifically, the stock’s January put/call open interest ratio arrives at 1.78, with call open interest nearly doubling put open interest among short-term options.

Overall, options traders are not expecting much of a post-earnings move from WFC stock. Currently, January implieds are pricing in a potential move of about 2.8%. The upper bound for this move lies at $54.02, while the lower bound rests at $50.98.

1-12-2015 WFC
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 A rally would place WFC back above its 50-day moving average, but shy of resistance at $55. A decline, meanwhile, would test key support at the $51 region, which is home to WFC’s 200-day trendline.

Traders looking to side with the bears ahead of Wells Fargo’s quarterly report might want to consider a Feb $50/$52.50 bear put spread. At last check, this spread was offered at 81 cents, or $81 per pair of contracts. Breakeven lies at $51.69, while a maximum profit of $1.69, or $169 per pair of contracts, is possible if WFC stock closes at or below $50 when February options expire.

It should also be noted that it is possible to double your initial outlay on this trade (at $50.88) even if WFC fails to fall below the $50 mark, so be sure to set your limit orders accordingly.

JPMorgan Chase & Co (JPM)

JPMorgan Chase will follow Wells Fargo into the earnings limelight on Wednesday, with Wall Street forecasting a profit of $1.32 per share from the banking giant. There is considerable optimism in JPM’s sentiment backdrop at the moment, which has helped to push the whisper number to $1.38 per share.

Unlike WFC, JPM stock has a wealth of bullish backers at the moment. For instance, Thomson/First Call data reveals 24 “buy” ratings, five “holds” and no “sells.” Additionally, there is room for improvement, as the consensus 12-month price target for JPM stock rests at $68, representing a premium of only about 14% to Friday’s close.

Optimism within the options pits is considerably more subdued, with JPM’s January put/call open interest ratio arriving at 1.17. However, this ratio has been on the rise heading into the company’s quarterly report, pointing toward a growing bullish contingent.

1-12-2015 JPM
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Turning to implieds, we find that January options are pricing in a potential post-earnings move of about 3.2% for JPM stock. This places the upper bound at $61.42, while the lower bound lies at $57.58. An upside move could place JPM back above its 50-day moving average, while a downside move should hold firm above the stock’s 200-day trendline.

Traders looking to side with the bulls ahead of JPMorgan’s quarterly report might want to consider a Feb $60/$62.50 bull call spread. At the close of trading on Friday, this spread was offered at 93 cents, or $93 per pair of contracts. Breakeven lies at $60.93, while a maximum profit of $1.57, or $157 per pair of contracts, is possible if JPM closes at or above $62.50 when February options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/blue-chip-financials-jpm-wfc-2-trades/.

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