Options Trader Makes a Million Dollars Betting on Bank Earnings

Rebel Hub Education

by

Justin Nugent

April 14, 2023
at 3:23 PM

This week, many of TV’s talking heads and fund traders doubted the ability of the banks to beat earnings this season. Even Warren Buffett took a doom-and-gloom tone when he said that we hadn’t yet seen the end of the bank defaults. Buffett put his money where his mouth was – selling his entire stake in banks like Wells Fargo, Goldman Sachs and JPMorgan. However, Buffett isn’t the trader we’re highlighting today. Instead, we’re looking at an options trader who took a bold, contrarian approach to the bank earnings.

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The Trade

When we spot 100,000 contracts bought in a lightning quick period, it really piques our interest. Each of these contracts command 100 shares worth of leverage — that’s a 10 million share equivalent. However, these options have something unique about them — they cost as little as $0.10 per contract. In the options world, that’s extremely cheap. Despite the low price tag, these options were bought with more than a week remaining to expiry. That gave this trader plenty of time to see these options rise in value. And following Friday’s news, that’s exactly what they did.

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The Earnings Result: JPMorgan, Citi, Wells Fargo Beat Earnings

JPMorgan, Citigroup, and Wells Fargo all reported earnings early on Friday morning. Despite plenty of pessimism from bears across the market, and despite the reverberations of SVB, all three banks crushed their earnings expectations.

JPMorgan:

EPS: $4.10 VS EST. $3.41

REV: $38.34B VS EST. $36.19B

Citi:

EPS: $2.19 VS EST $1.66

REV: $21.48B VS EST. $19.45B

Wells Fargo:

EPS: $1.23 VS EST. $1.12

REV: $20.73B VS EST. $20.12B

JPMorgan was the biggest breakout star of the bank earnings, and if you’re wondering, yes, we altered Rebels to unusual options activity in this name as well.

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The Trade Outcome

Options are the king. There is almost nothing shares can do that options can’t do. Want to short a stock? Just buy puts. Or a put debit spread. Or sell a call credit spread. Or simulate a short stock position. Want to buy a stock? Go bullish for a fraction of the cost, and use a variety of spreads to mitigate metrics like theta decay.

It’s really simpler than it sounds. This trader wanted to make a big bet on bank earnings. They used options to get exposure to 10 million shares of XLF. If they did that using shares, it would have cost over $320 million dollars. And likewise, if they simply put the money they spent on options into shares, they would have only managed to accrue around 19,800 shares of XLF. That’s not a small amount, but it pales in comparison to the 10 million shares they were able to access with options.

But it takes more than simply understanding that options are king in order to properly utilize them. It takes great trade ideas, and discipline. That’s what we supply at Market Rebellion.

When Rebels were first alerted to this massive XLF trade, these options cost as little as $0.10 per contract. Today, on the back of big bank success, those options are trading for as much as $0.25 per contract, and with a week left to expiry, they could very well continue to climb in value.

Curious what unusual options activity we’re seeing RIGHT now? Sign-up for our curated weekly trade ideas based on unusual options activity below. We’ll tell you what they’re buying the second they buy it, and then we’ll craft trade ideas based around those “smart money” moves.

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