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Financial Stocks Options Look Cheap As Interest Rates Are Set To Drop

Jun 10, 2019

 

Diverse Option Strategies for All Risk LevelsDiverse Option Strategies for All Risk Levels
Diverse Option Strategies for All Risk LevelsDiverse Option Strategies for All Risk Levels

 

Russell 1000 Financials Stocks with Most Expensive 30-Day Volatility

Name Ticker 30-Day
Implied Volatility
90-Day
Implied Volatility
30-Day
Percentile
90-Day
Percentile
30-Day Percentile
for Implied-Realized Spread
90-Day Percentile
for Implied-Realized Spread
New York Community Bancorp, Inc. NYCB 42.1 34.08 99.60% 98.81% 95.24% 99.21%
FactSet Research Systems Inc. FDS 26.83 25.63 94.84% 99.21% 67.46% 78.97%
New Residential Investment Corp. NRZ 22.79 20.68 92.46% 91.67% 34.52% 80.56%
Signature Bank SBNY 34.66 27.89 88.89% 72.22% 41.67% 29.76%
MarketAxess Holdings Inc. MKTX 28.07 27.17 82.14% 86.90% 14.29% 58.73%
Synovus Financial Corp. SNV 29.79 28.43 80.95% 86.11% 34.13% 45.24%
State Street Corporation STT 30.23 29.19 80.56% 84.52% 68.65% 89.29%
East West Bancorp, Inc. EWBC 30.94 29.28 77.78% 80.95% 8.73% 13.49%
Comerica Incorporated CMA 28.56 27.77 75.40% 86.11% 21.43% 37.70%
Bank of America Corporation BAC 25.18 25.07 72.22% 78.57% 21.43% 49.60%

 

Russell 1000 Financials Stocks with Cheapest 30-Day Volatility

Name Ticker 30-Day
Implied Volatility
90-Day
Implied Volatility
30-Day
Percentile
90-Day
Percentile
30-Day Percentile
for Implied-Realized Spread
90-Day Percentile
for Implied-Realized Spread
Everest Re Group, Ltd. RE 15.74 16.91 1.19% 3.97% 37.30% 28.97%
Loews Corporation L 13.82 15.36 2.78% 6.75% 15.08% 53.97%
Alleghany Corporation Y 14.19 14.72 2.78% 1.98% 23.81% 15.87%
Assurant, Inc. AIZ 20.5 21.48 3.17% 5.36% 7.54% 25.79%
The Hanover Insurance Group, Inc. THG 19.74 21.34 3.97% 45.83% 39.29% 89.68%
RenaissanceRe Holdings Ltd. RNR 18.49 18.62 6.15% 8.73% 16.27% 38.89%
W. R. Berkley Corporation WRB 12.93 14.65 6.35% 21.03% 61.51% 74.21%
Santander Consumer USA Holdings Inc. SC 24.88 26.05 8.53% 15.48% 0.40% 31.35%
TFS Financial Corporation TFSL 15.15 15.99 8.73% 10.71% 30.95% 19.05%
Credit Acceptance Corporation CACC 24.15 25.75 9.52% 8.33% 20.24% 56.75%
  • Despite an environment where interest rates are set to drop, we are surprised to see that the majority of the options for financial stocks in the Russell 1000 are inexpensive
    • This is counter-intuitive simply because rates are being lowered amidst uncertainty surrounding economic growth
    • All else equal, lower interest rates lead to lower net interest margin which lowers profitability and generates lower return on equity
  • Out of 141 financials stocks in the Russell 1000, 57 stocks have 30-day implied volatility percentile rankings below 40%
  • New York Community Bank (NYCB) and FactSet Research Systems (FDS) are two notable names that have both expensive options as well as expensive risk premiums for 
    • NYCB certainly is a bank stock that will materially impacted by lower interest rates
      • NYCB is rated is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas
    • FDS is a fast-growing data research analytics firm who reports earnings at the end of June
      • FDS is rated is rated “Top Buy” in our US Large-Cap Global Top Stock Ideas

 

 

 

OptionsQuantitatively derived options trades TRANSPARENT AND EASILY EXECUTABLE
OptionsQuantitatively derived options trades TRANSPARENT AND EASILY EXECUTABLE