Buy HSBA LN 560 put for 7.25 (1.2%, ref 591.2)
Four large US banks (JPM, WFG, C and BAC) reported earnings on Friday. All beat on EPS, and all but WFG beat on revenue. But all with any significant investment banking exposure fell significantly short in this segment. They rose on average 2%, but we note this is on a five-day streak of short covering in US equities.
Meanwhile in Europe, the SX7E is trading in overbought territory once again – in fact it is the most overbought sector in the region, having risen 15.5% since mid-December. Among the European banks with liquid options, 3/4 are trading in overbought territory. HSBA LN’s RSI is approaching 83, and is up 20% since mid-December.
Term structures have come off dramatically in the recent rally, so we prefer hedging to overwriting. HSBC is our top pick.