Investors should take a look at the options market to bet on the long-awaited rebound of Wells Fargo , according to the derivatives research team at Goldman Sachs. John Marshall, the firm’s head of derivatives research, said in a note to clients that Wells Fargo looks like an options trade candidate ahead of its earnings report. He said that Goldman bank analyst Richard Ramsden is optimistic about Wells Fargo’s outlook for the rest of year. “Richard is constructive on WFC heading into 2Q24 earnings as he sees upside to 2024 NII guidance and earnings driven by an acceleration in loan/deposit growth along with potential asset cap lifting,” the note said. Wells Fargo is set to release its latest earnings before the bell on Friday. Marshall suggested investors take a look at the call options with a $61 strike price that expire later this month. Call options give the holder the right to buy a stock at a pre-set strike price. They serve as a bet that the stock will rise above the strike, thus allowing the stock to be bought at a discount. The risk to the trade is that stock trades below the strike price until expiration, and the premium to buy the option is lost. WFC 5Y mountain 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 it is still under regulatory restrictions related to a fake accounts scandal under a previous CEO. However, the stock has rallied more than 20% this year, and Goldman sees signs that the bank’s fundamentals could top expectations. “WFC guided for 2024 NII (Net Interest Income) to decline by 7-9% [year over year] and Richard sees upside to this guidance as he expects NII to decline by only 7% on the back of deposit and loan growth rising in 2H24. Richard sees multiple tailwinds to earnings growth if the Fed were to lift the asset cap restrictions imposed on WFC,” the note said. — CNBC’s Michael Bloom contributed reporting.
