Bank Calls Surge Before Biggest Firms Report Earnings (Update2)

By Jeff Kearns

July 9 (Bloomberg) -- Trading of bullish options on U.S. banks and brokers rose to a two-month high before three of the five biggest financial companies report results next week.

More than 287,000 calls to buy the Financial Select Sector SPDR Fund, an exchange-traded fund tracking 79 firms, changed hands, triple the four-week average and double the number of puts to sell. The ETF climbed 1.4 percent to $14.51, its highest close since June 25. The ETF’s most-active options were July $15 calls, which more than doubled to 9 cents and accounted for more than half of call volume.

The biggest transaction involved 95,000 of the July $15 calls at 1:57 p.m. for 8 cents each, Bloomberg data show. The fund, known by its XLF ticker, hasn’t closed above $15 since May 27. This month’s contracts expire at the end of next week.

“It’s a big, bold trade,” said Joseph Cusick, senior market analyst at OptionsXpress Holdings Inc., a Chicago-based online brokerage. “Someone’s taking a bullish speculative position before earnings next week.”

JPMorgan Chase & Co. will report results July 15 while Bank of America Corp. and Citigroup Inc. will follow on July 16. Second-quarter profit at financial firms in the Standard & Poor’s 500 Index will increase 81 percent from a year earlier, according to the average analyst estimate in a Bloomberg survey.

Investors also are creating new bullish positions in September XLF options, according to options strategists at Susquehanna International Group LLP in Bala Cynwyd, Pennsylvania. An investor bought almost 30,000 September $15 calls on the ETF yesterday, and today someone bought 30,000 September $15 calls while selling 30,000 December $16 calls in a strategy known as a calendar spread, Susquehanna said in a report.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.