2 Must-See Financial Earnings to Watch Tomorrow

AXP could be at risk of a post-earnings pullback, if past is precedent

Oct 17, 2017 at 4:27 PM
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Big-cap financial firms continue to make headlines, as third-quarter earnings season heats up. Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) both posted better-than-expected earnings today, although shares of the former closed lower. Stepping up to the earnings plate tomorrow are U.S. Bancorp (NYSE:USB) before the open and American Express Company (NYSE:AXP) after the close. Here's a closer look at USB and AXP ahead of earnings, and how options traders have been positioning themselves on the financial shares.

USB Options Traders Call-Heavy Ahead of Earnings

After hitting an all-time high of $56.61 on March 1, U.S. Bancorp stock entered a three-month period of consolidation. The equity has been on the mend since falling to the $49.50 level in early September, but has struggled to break through congestion in the $54.50 neighborhood. USB closed tonight at $53.88, but the banking shares could be poised for a rally above this level, if past is prologue.

Over the past eight quarters, USB shares moved higher the day after reporting six times, with an average post-earnings move of 1.2%, regardless of the direction. This time around, the options market is pricing in a bigger-than-usual one-day swing of 2.3%. A rally of this nature would send the security to the $55.12 level -- territory not seen since mid-March.

Short-term options traders are more call-heavy than usual ahead of the earnings event. The equity's Schaeffer's put/call open interest ratio (SOIR) of 0.41 stands higher than just 10% of all other reading from the past year. Peak front-month open interest of 16,821 contracts is found at the in-the-money October 52.50 call, and those that have bought to open positions here are betting on another post-earnings pop.

Call Buying Pops on American Express Stock Before Earnings

Boasting a 23.7% year-to-date gain, American Express stock has surged the charts in 2017 -- and hit an annual high of $93.35 just yesterday. The shares pared a portion of these gains today, though, closing 0.3% lower at $91.69. Plus, the Dow stock could be vulnerable to an even bigger pullback, if past is precedent.

Historically, AXP shares have moved lower the day after five of the last eight earnings reports. On average, the equity has averaged a single-session post-earnings move of 4.5%, regardless of direction. For Thursday's trading, the options market is pricing in a less volatile post-earnings swing of 3.9%. A drop of this magnitude could have the stock testing the $88-$89 region, home to its 40-day moving average.

Options players on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been betting on the stock to snap its negative earnings history. AXP's 10-day put/call volume ratio of 1.44 stands in the 97th percentile of its annual range, suggesting options players have bought to open calls relative to puts at an unusual pace in recent weeks.  


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