As U.S. lenders begin to report earnings this week, investors' focus will likely shift from profits to bank bosses' remarks on the economy after President Donald Trump unveiled steep tariffs and triggered a market selloff.

Bank executives are also likely to be quizzed during earnings calls about the market selloff that has wiped trillions of dollars off global stock indexes. Bank stocks were among the hardest hit, after rallying earlier this year on optimism that dealmaking would recover.

There’s no one-size-fits-all approach to earnings trades. Option strategy choice depends on the expected move, the volatility crush, and your directional bias (if any).

1. Bull Put Spread

Bullish bias + high IV: Sell put spreads or naked puts just outside the expected move. These often perform well when a stock beats modest expectations.

For example, Morgan Stanley's first quarter revenue is expected to be $16.76 billion, up 10.7%, with an adjusted net profit of $3.67 billion, up 12%, and an adjusted EPS of $2.29, up 13%, according to Bloomberg's consistent expectations.

“Equities trading strength and lagged impact on wealth from market weakness (more a Q2 event) should combine for a strong Q1 2025,” BofA analysts believe.

Investors will closely monitor net new asset growth, which has averaged several billion dollars per quarter over the past year, as a key indicator of future acceleration, the analysts added. 

Key Metrics:

• Sell $99 Put / Buy $94 Put (April 11 Expiry)

• $MS Vertical 250411 94.0P/99.0P$

• Net Credit Received: ~$1.72×100 (mid-price)

• Max Profit: $1.72×100 (per spread)

• Max Loss: $3.28×100 ($5 strike width - $1.72 credit)

Source: Tiger Trade App

2. Bear Call Spread

Bearish bias + high IV: Use call credit spreads or bearish calendars. Watch for crowded long setups—disappointment can cause outsized moves lower.

For example, Wells Fargo's first quarter revenue is expected to be $20.8 billion, down 0.3%; with an adjusted net profit of $4.14 billion, down 3.93%, and an adjusted EPS of $1.24, down 1.9%, according to Bloomberg's consistent expectations.

They attributed this to a conservative fee forecast despite expectations for a trading rebound to approximately $1.4 billion quarter-over-quarter.

Investment banking may benefit from market share gains, but equity gains are expected to drop off significantly after a strong $715 million performance in Q4 2024.

The key issue for Wells Fargo remains the ongoing asset cap imposed by regulators, which continues to limit growth potential. “[Wells Fargo] needs asset-cap removed to clear the decks for both management and the Street to reframe the risk/reward,” analysts wrote.

Key Metrics:

• Sell 64.0 Call / Buy 66.0 Call (April 11 Expiry)

  $WFC Vertical 250411 64.0C/66.0C$

• Net Credit: ~$0.58×100 per contract (mid-price estimate).

• Max Profit: $73.5 per spread (credit received).

• Max Loss: -$126.5 per spread