Citigroup Inc, Goldman Sachs Group Inc to Continue Barrage of Bank Earnings

Banking giants Citigroup Inc (NYSE:C) and Goldman Sachs Group Inc (NYSE:GS) will hit the earnings stage tomorrow

Jan 17, 2017 at 10:37 AM
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Banks have dominated the start of earnings season, and won't be slowing down any time soon. This morning, in fact, Morgan Stanley (NYSE:MS) reported an earnings beat -- but, so far, the financial stock has failed to capitalize on the upbeat news. Looking ahead to Wednesday, both Citigroup Inc (NYSE:C) and Goldman Sachs Group Inc (NYSE:GS) will step into the confessional bright and early.

Starting with C, put buying has really picked up in recent weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 10-day put/call volume ratio of 0.69 ranks just 14 percentage points from an annual peak. Plus, put open interest registers in the 96th percentile of its 12-month range.

That's not to say all these puts are bearish in nature. Despite being down 1.8% at $58.43, C stock is just a chip-shot from its post-financial crisis high of $61.63, notched on Jan. 4. So, it's possible traders could be scooping up puts -- especially at out-of-the-money strikes -- to hedge their long stock positions ahead of earnings.

Speaking of earnings, Citigroup Inc shares have tended to make modest moves in recent quarters. Following the bank's last three reports, the stock hasn't swung more than 0.3% in either direction, in the ensuing session. However, it still looks like a good time to purchase premium on C. The stock's Schaeffer's Volatility Index (SVI) of 25% ranks in the low 17th annual percentile -- hinting at muted short-term volatility expectations -- while its Schaeffer's Volatility Scorecard (SVS) of 84 suggests the shares have historically been more volatile than the options market has priced in.

GS, meanwhile, has made some bolder single-session post-earnings moves of late, with four of the last five exceeding 2% in either direction. As with its sector peer, though, puts have been flying off the shelves ahead of tomorrow's earnings event. Put open interest checks in higher than 94% of comparable readings from the past year. In addition, the stock's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.69 sits only 4 percentage points from a 52-week peak -- which, as explained earlier, could be the work of either bearish speculators or shareholders hedging.

As with Citigroup, now appears to be an opportune time to purchase premium on GS options. The stock's SVI of 26% is near the bottom quartile of its annual range. Likewise, GS sports an SVS of 80.

On the charts, GS has been explosive of late. Since the U.S. presidential election, the bank shares have surged over 32% to trade at $240.60, despite being down 1.5% today. Not to mention, the stock isn't far from its nine-year high of $247.77, touched last week.

Analysts have been slow to climb aboard the bullish bandwagon, however. Specifically, Goldman Sachs Group Inc has received just 50% "buy" or better ratings from the 18 brokerage firms with coverage. That said, the tide may be starting to turn. Over the weekend, Barron's waxed optimistic on the shares (subscription required), explaining "Goldman stands to profit from a rebounding economy, which would bolster its trading business, and from rising interest rates, which could help its lending spreads."

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