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Earnings Preview: JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo

Short-term bulls are circling JPM and WFC ahead of next Friday's announcements

by 4/4/2013 1:03 PM
Stocks quoted in this article:

First-quarter earnings season unofficially kicks off next Monday, when aluminum giant Alcoa Inc (NYSE:AA) unveils its quarterly results after the close. Two other names of notable interest taking to the stage next week are JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC), both slated to report ahead of the bell on Friday, April 12. Here's a quick look at what's been happening in the options pits for these two financial firms leading up to next week's respective announcements.

Starting with JPMorgan Chase & Co. (NYSE:JPM)... Ahead of next Friday's scheduled event, option players are placing short-term bullish bets on JPM in today's session. Of the roughly 700 contracts that have traded at the stock's weekly 4/12 49-strike call, 80% have crossed at the ask price, and no positions are currently open here -- pointing to buy-to-open activity. The out-of-the-money calls are being purchased for a volume-weighted average price (VWAP) of $0.18, meaning the calls will be profitable with each step above $49.18 (strike plus VWAP) JPM takes through next Friday's close, when the options expire. From a wider sentiment standpoint, though, puts have been favored on JPM, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.15, which ranks in the 79th percentile of its annual range. In other words, short-term speculators are more put-heavy than usual toward JPM.

Technically, the shares of JPM have rallied more than 21% from their mid-November low of $38.83. Plus, the stock tagged a fresh four-year high of $51 on March 14. Fundamentally, JPMorgan Chase has bested analysts' bottom-line expectations in each of the last four quarters. Wall Street is calling for a first-quarter profit of $1.39 for JPM.

Weekly calls are popular on Wells Fargo & Co (NYSE:WFC) today as well, with the 4/12 37-strike call seeing the most action thus far. Nearly 3,600 contracts have traded at this in-the-money strike for a VWAP of $0.51. Breakeven for the calls is $37.51, or roughly 1% above its current price of $37.08. Expanding the scope reveals that option players have been optimistically aligned toward WFC for some time now. During the past 50 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 184,629 calls, compared to 85,444 puts. The resultant call/put volume ratio of 2.16 ranks higher than 83% of other such readings taken in the past year, suggesting calls have been accumulated over puts at a faster-than-usual clip in recent months.

On the charts, Wells Fargo has added 8.5% year-to-date, and similar to JPM, hit a four-year peak of $38.20 on March 15. The equity has pulled back since hitting this notable milestone, and is currently contending with newfound resistance from its 20-day moving average. On the earnings front, the company has exceeded Wall Street's per-share profit forecast in each of the last four quarters. According to Thomson Reuters, analysts are calling for a profit of 88 cents per share in WFC's first quarter.


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