Why bank stocks could see big moves—again—this week

These stocks could surge on earnings

With earnings season officially getting underway, investors will be focused on the financials as JPMorgan, Citigroup and Wells Fargo are among the first of the big banks to release results. And the options market is implying some volatile moves for the space as the reports start to roll in later this week.

JPMorgan reports before Thursday's opening bell. Stock traders are anticipating a more than 3 percent move in either direction following those results. Shares of JPMorgan are up 7 percent in the last three months.

Wells Fargo and Citigroup are on deck Friday morning. The options market is implying a nearly 3 percent move higher or lower for Wells Fargo, and a more than 4 percent move for Citigroup.

If all of the implied moves were to come to fruition, it could represent a more than $16 billion shift in market cap for the financial sector.

Options traders calculate the implied move for equities by measuring a particular stock's so-called straddle — or at the money put and call. The amount of the straddle typically captures market makers' expectations for how much a stock is going to move.

"This isn't a space that has performed well. They are cheap on a valuation basis and the reason they are cheap is because people have a very pessimistic outlook for them," Optimize Advisors co-founder Mike Khouw said Friday on CNBC's "Options Action." The financial sector is the worst performing in the S&P year to date, down more than 3 percent. "For me that actually sets up a little bit better for making an upside bet," he added.

Khouw recommended selling the Citigroup August 40-strike put for $1.15.