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MKM Partners commented on financial stocks Thursday ahead of supervisory stress tests results the same day and the Comprehensive Capital Analysis and Review (CCAR) on March 11.
Derivatives Specialist Jim Strugger noted that financials were the third-worst performing sector this year with a decline of 1.9 percent.
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The current steep level of skew across the above stocks suggested "that embedded anxiety ahead of the [stress test and CCAR] results could be unwound resulting in upside for the sector," according to Strugger.
Looking at the forward price-to-book ratio and year-to-date Performance, Bank of America Corp (NYSE: BAC) appeared as an outlier among JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc (NYSE: C), Goldman Sachs Group Inc (NYSE: GS), Morgan Stanley (NYSE: MS), and the Select Sector Financial Slct Str SPDR Fd (NYSE: XLF).
Bank of America "now trades 0.74x forward consensus book value versus 1.3x for XLF and 1.0x the peers included here," Strugger observed.
Strugger commented that the "one-month skew is the flattest of the group on a relative basis," which implied that investors "may think BAC's pullback has run its course."
In terms of a trading idea, Strugger liked buying the June 17 strike, 30 delta calls at $0.34 for long directional exposure.
Bank of America recently traded at $15.94, up 0.63 percent.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.