Options Strategist Strangles JPMorgan Chase

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.

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.

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