Earnings Preview: Bank of America Corp, Wells Fargo & Co, and Delta Air Lines, Inc.

Analyzing recent option activity ahead of earnings on Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), and Delta Air Lines, Inc. (NYSE:DAL)

Oct 13, 2015 at 12:26 PM
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Third-quarter earnings season is underway, with Wall Street digesting results from one blue chip today -- and a pair of other notable names on tap after the close. Also on this week's radar are financial firms Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC), as well as airline issue Delta Air Lines, Inc. (NYSE:DAL). Below, we'll take the pre-earnings temperature on BAC, WFC, and DAL.

  • It's been a dismal year for BAC -- down 13.2% at $15.52 -- and option traders have been growing increasingly skeptical not only toward the stock, but the financial sector as a whole, ahead of earnings. In fact, BAC's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.32 ranks in the 99th annual percentile, meaning puts have been bought to open over calls at a faster clip just 1% of the time within the past year. Looking back over the past eight quarters, BAC has averaged a single-session post-earnings move of 2.8%, and this time around, the equity's near-term at-the-money (ATM) straddle is pricing in a bigger 3.2% swing. Bank of America Corp will unveil its third-quarter results ahead of tomorrow's open.

  • Also stepping into the earnings confessional bright and early tomorrow is WFC, and according to the security's near-term ATM straddle, a 2.3% post-earnings swing is expected. This is wider than the 0.9% move the stock has averaged in the session subsequent to reporting over the past eight quarters. Option traders are betting on this action to resolve to the upside, per WFC's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.42 -- in the 74th annual percentile. Ahead of the scheduled event, volatility expectations have been on the rise. Specifically, the equity's 30-day ATM implied volatility of 19.7% sits higher than 79% of all similar readings taken in the past year. On the charts, WFC has shed 11.5% since topping out at an all-time peak of $58.76 in July to trade at $52.01. Off the charts, Wells Fargo & Co said it will purchase roughly $32 billion in financial assets from General Electric Company (NYSE:GE), as well as assume responsibility for about 3,000 GE employees.

  • Airline stocks are in focus today, after J.P. Morgan Securities lowered its 2017 profit forecast for the sector due to increased fuel and labor costs. The brokerage firm also chimed in on a number of individual equities, and for DAL, this resulted in a price-target hike to $74.50 from $63 -- never-before-seen territory. DAL is failing to capitalize on this upbeat outlook, though, down 0.2% at $48.40, widening its year-to-date deficit to 1.6%. The stock could see some action after it steps up to the earnings stage tomorrow morning, considering its near-term ATM straddle is projecting a single-session post-earnings move of 3.9% -- roughly in line with what DAL has averaged over the past eight quarters. Option traders, meanwhile, have been loading up on long calls over puts in the months leading up to the results. Specifically, Delta Air Lines, Inc.'s 50-day call/put volume ratio of 4.24 rests above 69% of all comparable readings taken in the past 12 months.
 

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