JPM – JPMorgan Chase & Co. – A short strangle initiated in JPMorgan’s December contract this morning indicates one options trader expects the price of the underlying stock to remain range-bound through expiration day in the final month of 2010. Shares of the financial services firm are currently down 0.95% to arrive at $37.06 as of as of 12:00 pm in New York trading. It appears the strangle-strategist sold approximately 10,000 puts at the December $36 strike for an average premium of $1.16 each in combination with the sale of roughly the same number of calls at the higher December $39 strike at an average premium of $0.79 a-pop. Gross premium pocketed by the seller amounts to an average of $1.95 per contract. The trader keeps the full premium received on the sale as long as JPM’s shares trade within the confines of the strike prices described through expiration day next month. But, this strategy is not without its risks. The investor will start to absorb losses in the event that, at expiration, JPMorgan’s shares are trading above the upper breakeven price of $40.95 or beneath the lower breakeven point at $34.05. Shares in JPMorgan Chase & Co. have traded above $34.05 for more than one year, but exceeded the upper breakeven price of $40.95 as recently as September 21, 2010.
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.
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