Options Players Flock to JPMorgan and Initiate Diverse Strategies

JPM – JPMorgan Chase & Co. – A large-volume bullish transaction on the financial services firm caught our eye this afternoon. It looks as though one big player is positioning for JPM’s shares to climb higher by expiration day next January. Other strategists appear to have enacted short strangles using call and put options expiring in Jan. 2011. Today shares in JPMorgan gained as much as 2.70% to touch an intraday high of $39.09, with shares currently trading 2.35% higher on the day at $38.96 as of 2:05 pm ET. The investor looking for shares to rise initiated a debit call spread, buying 20,000 calls at the January 2011 $39 strike at a premium of $2.55 each, and selling the same number of calls at the higher January 2011 $42 strike for a premium of $1.30 apiece. The net cost of the transaction amounts to $1.25 per contract and prepares the investor to make money if shares rally above the effective breakeven price of $40.25 by expiration day. Maximum potential profits of $1.75 per contract are available to the trader should JPM’s shares increase 7.80% over the current price of $38.96 to trade above $42.00 by January expiration. In contrast to the call spreader, strangle strategists took a different approach. These traders are expecting JPMorgan’s shares to remain range-bound through expiration in January. Investors appear to have sold approximately 5,000 calls at the January 5,000 calls at the Jan. 2011 $43 strike for premium of $1.00 each, and shed some 5,000 puts at the Jan. 2011 $36 strike at an average premium of $1.85 a-pop. Gross premium enjoyed on the transaction amounts to $2.85 per contract. These traders keep the full amount of premium received as long as JPM’s shares trade within the confines of the strike prices described through expiration day in the first month of 2011. Short-strangle holders could suffer losses if JPM’s shares rally above the upper breakeven price of $45.85, or if shares trade below the lower breakeven point at $33.15, at expiration.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.