Investors should keep an eye on the options market and bet on Wells Fargo’s long-awaited recovery, according to Goldman Sachs’ derivatives research team. John Marshall, head of derivatives research at the bank, said in a client note that Wells Fargo is a likely candidate for options trading ahead of its earnings release. He cited Goldman banking analyst Richard Ramsden as optimistic about Wells Fargo’s outlook for the rest of the year. “Richard is positive on Wells Fargo heading into Q2 2024 earnings and sees 2024 NII guidance and earnings upside driven by accelerating loan and deposit growth and a possible asset cap increase,” the note said. Wells Fargo is set to release its latest earnings before the open of trading on Friday. Marshall suggested investors keep an eye on call options with a strike price of $61 expiring at the end of this month. These act as a bet that the stock price will exceed the strike price, thereby allowing you to buy the stock at a discount.The risk with the trade is that the shares trade below the strike price until expiration, losing the premium for buying the option. WFC 5-Year Mt Wells Fargo is off to a strong start in 2024 after a long period of underperformance. Wells Fargo has been a long-term underperformer among bank stocks and is still under regulation linked to a fake accounts scandal under its former CEO. But the stock has risen more than 20% this year, and Goldman sees signs the bank’s fundamentals could outperform expectations. “WFC expects NII (net interest income) to decline 7-9% in 2024. [year over year] “Richards sees upside room on this guidance, as he expects NII to decline only 7% in the second half of 2024 due to deposit and loan growth. Richards sees multiple tailwinds for earnings growth once the Fed lifts the asset cap restrictions imposed on WFC,” the note said. —CNBC’s Michael Bloom contributed to this report.
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