Zhitong Finance learned that J.P. Morgan Chase (JPM.US), Wells Fargo (WFC.US), and Citigroup (C.US) will kick off the Bank of America earnings season on Friday, and traders are quite confident about this. The three stocks have risen by more than 22% this year, yet the options market has shown little concern that the gains may be thwarted. According to compiled data, the hedging cost indicators for J.P. Morgan Chase and Wells Fargo stocks hovered near their lowest level since 2021, while Citi's hedging costs were below the yearly average.

Some of the largest banks in the US have successfully passed the Federal Reserve's annual stress test, and many banks have also increased their dividends to shareholders. Currently, the banking industry is awaiting a “discounted” version of the proposal for stricter capital requirements. The results announced by Jefferies Financial Group (JEF.US) at the end of June showed that the growth momentum of the investment banking business was increasing, increasing people's optimism about economic recovery. Previously, rising interest rates had curtailed the pace of deal matching.

According to Morgan Stanley analyst Betsy Graseck, Citibank, J.P. Morgan Chase, and Wells Fargo are the top choices for large-cap banks. She believes that J.P. Morgan Chase will accelerate stock repurchases in the next few quarters, Wells Fargo's net interest income prospects may also rise, and Citigroup's views on repurchases and revenue may become the focus.

Graseck wrote in a report: “It is expected that financial reports and forward-looking reviews will further confirm that global capital markets are still in the early stages of recovering from decades-long lows relative to nominal GDP.” Graseck added. Banks have no “bold assumptions” about loan growth this year.

As far as the volatility after the announcement of financial reports is concerned, the stock price trend reflected by options is more or less consistent with the trend after the announcement of previous financial reports. The market currently expects Wells Fargo and Morgan Stanley (MS.US) stock prices to be the most volatile, with an increase or decrease of 3.4%, which is in line with the average trend of their earnings reports for the past eight quarters.

At a time when expectations for moderate bank stock fluctuations appeared, the overall market was generally calm. The Chicago Board Options Exchange Volatility Index hit its lowest average since 2017 in the first half of the year. More importantly, as we all know, the US stock market is generally particularly calm in July every year: in the past 15 years, the VIX Index recorded its lowest average daily reading in July.

The number of outstanding options at J.P. Morgan Chase, Citigroup, and Wells Fargo dropped sharply after the last option expired, which once again showed that positions were still light until the results were announced. The number of open positions in J.P. Morgan Options is close to a 5-year low. The number of open positions in Citigroup Options reached its lowest level since the beginning of 2022, and the number of open positions in Wells Fargo Options is close to the lowest level since January this year.

Gerard Cassidy, a capital markets analyst at the Royal Bank of Canada, wrote in a report: “The situation over the next 18 months looks very favorable to the bank. The Federal Reserve is expected to cut interest rates, banks' financing costs may begin to fall, and the expansion of the US economy will help boost loan growth.” The Royal Bank of Canada also believes that banks will return excess capital through repurchases and dividends. “We continue to recommend investors increase their bank holdings in their portfolios,” the analyst said.