It appears that the severe bearishness on the U.S. financial sector has subsided somewhat after the latest batch of earnings reports, with options indicating that investors' worst fears were put to rest. The question now is, can they continue to move onward and upward?
This bullish development comes from the options market for financial stocks. Three-month puts on the Financial Select Sector SPDR Fund
Many of the largest U.S. banks, including Citigroup (C) and Bank of America (BAC), have already posted third-quarter earnings, and options behavior indicates that investors were pricing in a lot of pessimism going into their earnings reports. But investors seem satisfied-data from Bloomberg shows that financial shares as a whole have gained 14% since October 3.
The 10 banks that have reported results so far this season have exceeded the average analyst estimate by 14 percent, with Citigroup and Bank of America beating them the most, according to Bloomberg.
For a look at the banks options traders are most optimistic about, we ran a screen on the financial sector for stocks with the greatest decreases in put/call ratio over the last 10 trading days, indicating a bullish change in sentiment.
Do you think, despite continuing fears of another global economic crisis, that these banks will continue to be surrounded by optimism? (Click here to access free, interactive tools to analyze these ideas.)
1. NorthStar Realty Finance
2. NBT Bancorp
3. Central Pacific Financial
4. Arch Capital Group
6. India Fund
7. Invesco Mortgage Capital
8. Unum Group
9. American Campus Communities
10. Southwest Bancorp
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Options data sourced from Schaeffer's, all other data sourced from Finviz.
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