Should Investors Expect Surprises in Financial Sector?
The chart below, courtesy of Livevol, shows six months of price and volatility activity in JPMorgan, with the upper portion of the chart highlighting the last two earnings releases with the blue “E” icon. The bottom half of the chart plots 30-day implied volatility (red line) against 30-day historical volatility (light blue line) during the same period. Note that just prior to the last two earnings reports, implied volatility rose due to the uncertainty and potential for higher volatility associated with an earnings surprise. This time around, however, the lack of movement in implied volatility, as well as the proximity of the IV level to historical volatility, suggests that investors aren't expecting any surprises at all. In fact, this situation isn't specific to JPMorgan, but is also mirrored at Citigroup, Bank of America, Goldman Sachs, and even quasi-financial General Electric. Not surprisingly, the bank ETFs, such as KBE, and the financial sector ETF, XLF, show a similar pattern.
No matter how the current earnings season unfolds, it's difficult to imagine that there won't be any surprises. Investors who think implied volatility is underestimating the surprise potential for the banks may look to initiate long straddles or long strangles to take advantage of a potential increase in implied volatility -- and hence, options prices.
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All the banks have been lousy stewards of our money and claim to be in terrible shape yet they just celebrated Columbus Day with a paid Holiday! What the Hell does anyone celebrate Columbus Day for? Let's celebrate Madoff day where the SEC finally got off its arse and sent him to prison after his SEC sanctioned 30 years of free reign. Has anyone at the bank taken a pay cut? Have they reduced their Bonus plans? Hell no! It's their depositors that have to pay for their mistakes. The likes of Ken Lewis makes millions of dollars a year in wages and get millions more in Bonus money then millions more in stock options and millions more in retirement promises and look what he and his hand picked cronies did for Bank of America and the shareholders. And then the depositors pay the price while these thieves continue to collect their loot!
Johnny Lunch Box
JPM
PS
I'm no longer a depositor with Wells Fargo.
This is unbelievable as you have mighty Obama on your team. Just give him a call and tell him what is going. He makes good on lots of things all over the world you know. It appears to me he can all most walk on water, speak in untold tongues, sort like a modern day Robin Hood who robs from the middle so the rich and poor go well. I don't mind the poor getting a few dollars as I'm bit middle of the road but tend to donate when I have a few extra shilling to do so. Generally I like my donations to come directly from my pocket.
Call him Jim, he is the man. He will print a few more bucks slid them into that Wells Fargo bank with a few extra slides wink wink nudge nudge for the top man and the job is done. He does it all the time shouldn't be a problem as far as I can see.
