Options Fly at Banks as Investors Hunger for the Sweet Taste of Dividends

JPM – JPMorgan Chase & Co. – Bank stocks are rallying this morning after the Wall Street Journal reported the Fed may allow healthy banks to raise dividends. The Fed may release guidelines for assessing whether banks are healthy and strong enough to up dividends or buy back shares as early as this month, according to news reports. JPMorgan’s shares took off running and increased as much as 3.9% to hit an intraday high of $41.34 in the first half of the session, with shares currently trading higher by 2.9% to stand at $40.95 as of 11:00 am in New York. One options investor was quick to take a bullish stance on the financial services firm right out of the gate this morning. The trader enacted a three-legged spread on the stock, selling 5,000 puts at the December $38 strike for a premium of $0.63 each, buying the same number of in-the-money calls at the December $40 strike at a premium of $1.78 per contract, and selling 5,000 calls at the higher December $43 strike for a premium of $0.55 apiece. The net cost of the transaction amounts to $0.60 per contract and positions the options player to profit as long as JPM’s shares exceed the effective breakeven price of $40.60 through December expiration. Maximum potential profits of $2.40 per contract are available to the investor if the price of the underlying stock jumps 5.00% over the current price of $40.95 to exceed $43.00 by expiration day next month. As of 11:10 am, investors have exchanged more than 165,000 option contracts on JPMorgan, with more than two calls changing hands on the stock for each single put option in play thus far today.

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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