More gains ahead for Goldman? What the options market is telling us post-earnings

I’ll review how options traders positioning themselves in the biggest movers post-earnings and identify some stocks where heavy call buying could signal optimism going forward. Of the top 20 stocks in options volume that have reported quarterly earnings so far, a few have significantly outperformed the S & P 500, and a few have materially underperformed. Bank Ozk (OZK) , the best-performing financial stock this earnings season, is out of favor. Sell-side analysts believe that this specialty commercial real estate lender is facing some slowdown in its primary business. Paydowns are rising, and the bank faces compression in net interest margin from lower loan yields. The Street is generally quite bearish on the name; of 11 analysts covering the stock, only three rate the stock as a “buy,” and the average analyst price target of $52.38 represents a return potential of only 5%. OZK 1M mountain Bank OZK, 1 month The fourth-quarter earnings of $1.56 the company reported beat consensus by a large margin. When a stock is trading at a single-digit P/E ratio and a discount to its peers — the price to tangible book value per share is about 26% cheaper than the average for the group — an upside earnings surprise can create an above-average move. The stock rallied 10% after reporting. OZK traded more than six times the 20-day average call volume; the most significant trades were purchases of the February $40 and $42.5 calls, now deep in the money. These calls were likely bought to close/cover an existing short position, and this highlights why we generally do not favor selling covered calls that expire after an upcoming earnings event. While it is true that options premiums will often be elevated — which may be tempting — there’s good reason for this. Coiled spring Stocks can move very sharply if the results deviate from consensus. This is particularly true when the earnings results surprise in a direction opposite the general sentiment. Analysts were generally quite bearish on OZK, and the stock was cheap. The upside earnings surprised many, and consequently, the stock popped. Another regional bank that saw an upside move was Truist Financial (TFC) . Although sentiment pre-earnings was not as bearish as that in OZK, sell-side analysts were lukewarm here. Trading at a 20% discount to the group, TFC was also a coiled spring. When the company reported a 4% earnings beat, the stock rallied almost 6%. On Friday, Truist traded nearly 7 times the average daily call volume. More than 6,100 January 31st weekly 48 calls traded hands at an average price of 51 cents per contract. Buyers of these calls are betting TFC could hit fresh 52-week highs within the next two weeks. It should be noted that this was not a clean sweep for the larger regional banks. Citizens Financial Group (CFG) beat earnings by 2.4%, and the stock rose a modest 1.6%. Regions Financial, which posted an EPS beat of 7.5%, and M & T Bank, which beat earnings by 5%, both fell slightly following earnings. More gains ahead for Goldman, Schlumberger? As a group, diversified banks materially outperformed. Blackrock (BLK) , which rose more than 4% following its earnings beat, now boasts assets under management exceeding 11.5 trillion. Bank of New York Mellon (BK) profits and net interest income beat street expectations, and the stock rallied nearly 10%, outperforming the S & P by more than 7%. Interestingly, options flows do not suggest that traders bet on material follow-through in either of these. However, there was above-average call buying at Goldman Sachs (GS) , which beat earnings estimates by 45%; Citibank ‘(C) , which posted an 11.5% earnings beat; Wells Fargo (WFC) , which beat earnings by more than 5%, JPMorgan (JPM) which beat by 4.7% and Morgan Stanley (MS) which beat consensus by 31%. Among other things, elevated volatility contributed to increased trading profits. Outside of finance, analysts are generally bullish post-earnings on Schlumberger NV (SLB), which posted a modest 2.2% earnings beat. The stock rallied more than 6%, possibly because it was (and still is) trading at a material discount to the Oil Services industry. Options traders believe there’s more room to run; call volume was nearly four times the average. United Health posted a modest earnings beat, but revenue was disappointing, and the stock fell more than 6.2% even as the broad market gained more than 80 basis points over the same period. On January 24th, weekly $490 puts were most active as some traders were betting last week’s weakness may persist for a few more trading days. Another name that disappointed investors was the trucking company JB Hunt (JBHT) . The company missed earnings estimates by about 6% and also warned about Q1 2025 results. Due to higher costs, the company expects operating income to fall 20-25% sequentially. This company does not typically trade heavy options volume, with less than 800 contracts per day on average. However, on Friday, JBHT traded more than 6500 put contracts – more than sixteen times the twenty-day average of ~400 contracts. February puts were the most active across a wide range of strikes as options traders bet the weakness could persist for several weeks. 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