RPT-Bank stocks expected to swing less than usual on earnings

* JPMorgan, Wells Fargo to kick off bank earnings on Friday

* Options market prices in relatively low risk for banks

* Large put buying in Financial XLF ETF seen recently

By Angela Moon and Doris Frankel

Oct 12 (Reuters) - This earnings season looks like it will turn out well for U.S. banks, but given the run the financials have had in 2012, some options traders appear to be taking a cautious stance.

The two largest names in the banking sector by market value, JPMorgan Chase & Co and Wells Fargo, will report earnings Friday morning. Both stocks are up sharply this year, helping lead financials to a gain of 24 percent in 2012.

The Financial Select Sector SPDR fund, which tracks the financial stocks in the S&P 500, is up about 7 percent for the third quarter and its 24 percent gain in 2012 has outpaced the S&P 500 index, which is up 14 percent for the year.

But overall activity in XLF put options - contracts that give the right to sell the underlying security at a fixed price by a certain date - has picked up as earnings estimates have declined. Overall earnings estimates for the financials have fallen by 3.3 percent over the last 30 days, according to Thomson Reuters StarMine data.

The sector is expected to report year-over-year growth of about 1 percent for the quarter, which is down from an estimate of 5 percent growth just two weeks ago.

"We've turned bearish (on financials), probably more than we have ever been, and started to accumulate shorts and put positions in the last few days," said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

In the options market, heavy protective trading was seen in the XLF, including a large January 2013 $13-$15 put spread purchased on the fund earlier this week on the view that its shares could fall nearly 20 percent in the next three months.

However, the options market is also pricing in relatively low risk expectations for several banks reporting before Oct. 19 options expiration. Some strategists believe the market should be pricing in higher expectations for volatility, as large-cap financials have several potential catalysts that could sway the shares up or down.

"Overall results could reflect the fallout from the ongoing financial crisis in the eurozone as well as the November U.S. presidential election, which could be crucial regarding regulatory measures impacting the financial sector," said Ryan Renicker, head of global market strategy at Newedge USA Inc in New York.

The implied volatility for JPMorgan Chase & Co and Wells Fargo & Co for the next 30 days is extremely low heading into their earnings, said Ophir Gottlieb, managing director of options analytics firm Livevol in San Francisco.

Typically, implied volatility - a key component for an options price measuring the perceived risk of future stock movement - rises into earnings. In these cases, the low implied volatility compared with the past 12 months is "surprising and unusual," Gottlieb said.

At-the-money implied volatility for the next 30 days was at about 24 percent for Wells Fargo and at 27 percent for JPMorgan, below recent highs of 49 percent and 55 percent, respectively, reached in November 2011, Livevol data showed.

Wells Fargo options are implying a one-day earnings move of 3.25 percent up or down for its shares, slightly below the average move of 4 percent over the past eight quarters.

The heaviest open interest is concentrated in the October $35 WFC strike calls, with 60,000 contracts outstanding, said Enis Taner, global macro editor at options trading firm RiskReversal.com in New York.

In JPMorgan, options are implying an earnings-day move of 2.5 to 3.1 percent in either direction, compared with an average move of nearly 3 percent over the past eight quarters, analysts and traders said.

"JPMorgan also has a tendency to rally into earnings, and sell off afterward over the past few years," Taner said.

JPMorgan shares are up 27 percent for the year and Wells Fargo has gained 29 percent for the year.

Risk expectations for Bank of America Inc, which reports Oct. 17, are also abnormally low. "Bank of America shares are likely to come under pressure and its downside risk appears to be more substantial than the upside," Renicker said.

Its shares have risen 17.5 percent since Sept. 6, whereas Wells Fargo shares have rallied only 4 percent in that time. Bank of America options imply a 4.2 percent move post-earnings, slightly higher than the average move of 3.7 percent over the past eight quarters, Renicker said.