Big Bank Earnings: What the Options Market Is Telling Us

Straddles look overpriced heading into earnings, but shifts in call volume may hint at upside for WFC—and downside risk for JPM and C.

This article was originally published on 7/10/25 on MarketWatch.

Next week, the largest banks – Goldman Sachs (GS), JP Morgan (JPM), Citigroup ( C), Wells Fargo (WFC), and Morgan Stanley (MS) – will report earnings. Although these banks are covered by a large number of analysts, sometimes it is the case that the option market will give us a clue as to what, if any, earnings surprises might be in store.

Let’s starting with GS. It is due to report earnings on Wednesday, July 16, before the market opens. The “best” option estimate of what the earnings hold in store is the price of the near-term straddle. At the close on July 9, the GS (July 18) 697.5 straddle was trading at 29, with the stock trading at 697. The straddle costs 4.16% of the stock price. In other words, option traders are “predicting” that GS will move 4.16% on next week’s earnings announcement, but the straddle does not give any indication of whether that move will be higher or lower.

How does this compare with recent post-earnings actual moves? The following table shows the one-day moves in GS after each of the previous ten earnings reports.

Only two of those moves exceed 4.16% (either plus or minus), so it doesn’t appear that the straddle buy would be a good idea this quarter. I wouldn’t necessarily say that the straddle should be sold, though, for that could entail a large risk.

Perhaps we can gain a clue as to which direction the stock is likely to move. That can sometimes be seen in the option trading as well, if we look at the percent of calls traded versus total option volume on the stock. A distortion in that percentage as earnings approach can be useful.

In the case of Goldman, let’s look at last quarter, when earnings were reported on 4/14/25. The following table shows the 15 days leading up to the earnings, ending with Friday April 11. The percentage of total option volume in GS that was call options is shown in this table.

One can see that the percentage of call volume increased steadily heading into the earnings. In fact, it turned out that earnings were slightly better-than-expected, and GS rose 1.92% (previous table) on the day after the earnings – or about 9 points.

So, that data may have some usefulness. Let’s look at what this quarter is showing.

There are still a few more trading days until earnings are reported next week on June 16, but the pattern recently has seen the percentage of calls decreasing (or the percentage of puts increasing, if you prefer). That would indicate a slight bias to the downside – or that earnings might be a slight miss, but this isn’t really a very large change in the percentage of calls, so it’s not likely to be worth a trade.

We ran the same numbers for the other four “big bank” stocks mentioned at the beginning of this article. Here are the results. First, here is a table that shows the current near-term, at-the-money straddle price for each stock. The data for GS is repeated, for reference. In addition, the table shows how many times in the last ten earnings reports, has the one-day move after the earnings exceeded the straddle price shown in the table. One can see that, overall, the current straddles are somewhat expensive and would not be good buys for this quarter’s earnings reports.

So, the next step is to see if the percentage of option volume that is calls gives us any clues. As we did with GS above, let’s look at last quarter to see how things worked out. The following table shows the percentage of calls traded for each of these stocks, for the 15 days leading up to earnings. The GS data is repeated from the earlier table 2, for reference. At the bottom of the table, the stock move on the day after the earnings were reported is also shown.

The GS column shows that the percentage of call volume was increasing going into the 1st quarter earnings report, and the stock rose 1.92%. JPM had a similar increase in call volume prior to the earnings, and the stock was up 4.0% – a strong move. In fact, all of the stocks showed an increase in the percentage of calls. All but Wells Fargo (WFC) were higher.

So, those results are good enough that it’s worth looking at the same data for this quarter.

In the above table, the date in the first column allows for the fact that earnings are not being reported until next week. But there are some rather startling results. First, both JPM and C show a distinct decrease in percentage of calls over the past 10 trading days (and thus a distinct increase in the percentage of puts traded). That would be so bode unfavorably for the next earnings report for both companies, unless that percentage improves over the remaining days prior to this quarter’s earnings report. Only WFC shows a material increase in percentage of call volume, so it may fare better.

So, I’d say if you want to speculate on these earnings reports, buy a few puts on JPM and C, and buy a few calls on WFC. I wouldn’t buy straddles on any of them – they seem too expensive at the current time.