Disappointing earnings from JPMorgan Chase (JPM) and Morgan Stanley (MS) led to a sell-off in financials Thursday that spilled over into the broader market. But stocks came roaring back on Friday after retail sales data beat forecasts.
The financial sector outperformed following better-than-expected results from Citigroup (C) and Wells Fargo (WFC). Citigroup’s second-quarter profits beat analyst expectations despite a 27% year-over-year decline, leading to a nearly 14% jump in the stock.
In addition to Citigroup, we have two other positions in the financial sector: Bank of America (BAC) and Charles Schwab (SCHW). Admittedly, we are overweighted, but these are all solid companies with stellar long-term fundamentals.
Bank of America and Charles Schwab are scheduled to announce earnings on Monday.
We are on track to be called out of our C and BAC shares. Once the earnings dust settles, we will resume selling puts to reduce our net debits, taking advantage of what should still be elevated volatility levels.
Our SCHW call is on track to expire worthless. I want to hold the position through Monday’s earnings announcement, after which I will recommend another call to reduce our cost basis on the position.
BAC Jul Monthly (7/15) 31 Call
Current Stock Price: $32.39
Cost Basis: $41.37
Action: Allow shares to be called away
Net Debit: $10.37
Potential Rate of Return: I am targeting breakeven for this position
C Jul Monthly (7/15) 47.50 Call
Current Stock Price: $50.24
Cost Basis: $64.42
Action: Allow shares to be called away
Net Debit: $16.92
Potential Rate of Return: I am targeting breakeven for this position
SCHW Jul Monthly (7/15) 65 Call
Current Stock Price: $62.05
Cost Basis: $70.26
Action: Allow call to expire worthless
Potential Rate of Return: I am targeting breakeven for this position