Banking Optimism? Options Say Investors Are Relieved Over Latest Bank Earnings

It appears that the severe bearishness on the US 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 (XLF) now only costs 10.15 points more than calls, a significant decrease from October 3 outpacing any other industry according to data from Bloomberg.

Many of the largest US 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 ten 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?

1. NorthStar Realty Finance Corp. (NRF, Earnings, Analysts, Financials): Operates as a real estate investment trust in the United States. Market cap of $319.55M. Put/Call ratio changed from 4.50 to 0.43 between 10/05/11 to 10/18/11, a change of -90.44%

2. NBT Bancorp, Inc. (NBTB, Earnings, Analysts, Financials): Provides commercial banking and financial services to individuals, corporations, and municipalities in central and upstate New York, northeastern Pennsylvania, and the greater Burlington, Vermont area. Market cap of $678.85M. Put/Call ratio changed from 0.24 to 0.05 between 10/05/11 to 10/18/11, a change of -79.17%

3. Central Pacific Financial Corp. (CPF, Earnings, Analysts, Financials): Operates as the bank holding company for Central Pacific Bank that provides commercial banking services to businesses, professionals, and individuals in Hawaii. Market cap of $455.38M. Put/Call ratio changed from 0.11 to 0.03 between 10/05/11 to 10/18/11, a change of -72.73%

4. Arch Capital Group Ltd. (ACGL, Earnings, Analysts, Financials): Provides insurance and reinsurance products worldwide. Market cap of $4.54B. Put/Call ratio changed from 0.57 to 0.20 between 10/05/11 to 10/18/11, a change of -64.91%

5. FirstMerit Corporation (FMER, Earnings, Analysts, Financials): Operates as the bank holding company for FirstMerit Bank, N. Market cap of $1.38B. Put/Call ratio changed from 0.18 to 0.07 between 10/05/11 to 10/18/11, a change of -61.11%

6. Invesco Mortgage Capital Inc. (IVR, Earnings, Analysts, Financials): Operates as a mortgage real estate investment trust. Market cap of $693.29M. Put/Call ratio changed from 0.56 to 0.22 between 10/05/11 to 10/18/11, a change of -60.71%

7. Unum Group (UNM, Earnings, Analysts, Financials): Provides group and individual disability insurance products primarily in the United States and the United Kingdom. Market cap of $7.05B. Put/Call ratio changed from 0.83 to 0.43 between 10/05/11 to 10/18/11, a change of -48.19%

8. American Campus Communities Inc. (ACC, Earnings, Analysts, Financials): Engages in the acquisition, design, finance, development, lease, and management of student housing properties in the United States. Market cap of $2.67B. Put/Call ratio changed from 0.91 to 0.51 between 10/05/11 to 10/18/11, a change of -43.96%

9. Southwest Bancorp Inc. (OKSB, Earnings, Analysts, Financials): Operates as the holding company for the Stillwater National Bank and Trust Company and Bank of Kansas. Market cap of $90.59M. Put/Call ratio changed from 0.06 to 0.04 between 10/05/11 to 10/18/11, a change of -33.33%.

(Written by Alexander Crawford. Options data sourced from Schaeffer’s, all other data sourced from Finviz.)

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