JPM Earnings Trades – Was Premium Earnings 1-12-12

JP Morgan, $JPM, reports tomorrow morning at 7:00 am. As it comes into earnings it has been moving higher off of a double bottom at 28 since Christmas. It is now completing the Measured Move higher at 36.5-37 and near the 200 day Simple Moving Average (SMA). The Relative Strength Index (RSI) remains bullish and the Moving Average Convergence Divergence (MACD) indicator is positive, but stalled. It gives off a bullish but may consolidate aura. Resistance on a

move above the 200 SMA and 37 is at 38.75 and then 40. Support comes at 35 followed by 33.80 and 32.40. The weekly chart shows the significance of the 37-38 area with all the SMA’s consolidating there, and how over 40 there is room to run. It also shows a stock that is trying to turn bullish with a rising RSI, but not yet up to 60, and a increasing MACD. But notice that the volume on this leg higher has been declining. That is not a positive. Adds more weight to the consolidation story. The stock has not had a lot of action around earnings until last quarter when it moved nearly 5%. The average for the 5 quarters before that was only 1.1% or 40 cents. It has weekly options to give a near term read and the at-the-money Straddle (average of the 36 and 37 strikes) implies

move of $1.42 or almost 4%. The January Straddle implies a move of $1.30. a scenario of a move and sit. Implied Volatility is at over 80 on the weekly options but only 39 on the January version compared to historical at 41%. Options action and open interest on both Expiry are smooth around the current price.

Trade Idea 1: Sell the Weekly 36/37 Strangle for 90 cents
A bet that volatility fades and it moves only about 1%.

Trade Idea 2: Sell the Weekly 36/37 Strangle and Buy the January 36/37.5 Strangle for 17c
A low cost bet that it move little Friday but continues next week. Optimal case would be for the weekly Strangle to expire worthless and then sell the pieces of the January Strange next week.

Trade Idea 3: Sell the January 35/39 Strangle for 48 cents

Trade Idea 4: Buy the February 38/40 Call Spread and sell the Weekly 35 Puts and January 34 Puts for a net debit of 16 cents
This ties up double margin for only 1 day, but allows for a continuation of the upward bias on a longer timeframe away from earnings.

Trade Idea 5: Buy the stock and Collar it by selling a Weekly 37 Call and buying a January 35 Put
The collar should be free. This will get called away for 1.5% or so gain if it moves over 37 tomorrow and is uncapped going forward if not. The Put gives maximum $1 downside risk until the end of next week.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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