Premium Earnings 7-14-14: Goldman Sachs and JP Morgan

• Posted by Greg Harmon
• on July 14th, 2014

Two names today that report before the open Tuesday, Goldman Sachs, $GS, and JP Morgan, $JPM.

Goldman Sachs, $GS

Goldman Sachs, $GS, has been moving higher since mid May but as yet has not made a higher high. This means the series of lower highs and lower lows establishes the trend down. Currently it is building a Spinning Top or Doji Star, a possible reversal candle, on the 20 day SMA. The Relative Strength Index (RSI) is rising and in the bullish zone but with the same lower highs, with a MACD falling. There is support lower from 166.25 and 164.85 and then 162 and 160.40 followed by 154.30 and 151.75. There is resistance higher at 167.50 and then 170 followed by 174 and 178.65. The reaction to the last 6 earnings reports has been a move of about 1.97% on average or $3.30 making for an expected range of 163.30 to 170.30. The at-the money July Straddles suggest a larger $4.00 move by Expiry Friday with Implied Volatility at 28% above the August at 18%. Short interest is low at 2%. Open interest favors the 165-170 range this week. There were Puts traded on the offer side Friday and today sees more Put Spreads but also a large buyer of the 170 Calls that expire Friday.

Trade Idea 1: Buy the July 167.5/170 1×2 Call Spread for $0.10.

Trade Idea 2: Buy the July 167.5/170/172.5 Call Butterfly for $0.50.

Trade Idea 3: Sell the July 162.5/172.5 Strangle for a $1.00 credit.

#1 is good if you have margin and can hedge in pre market, but #2 takes no margin. #3 gives a good range, outside of the Bollinger bands.

JP Morgan, $JPM

JP Morgan, $JPM, looks like a broad sideways movement since December. The pop today ahead of earnings is in the middle of the SMA’s with some resistance at 58 above. 59.50 and 61.40 have shown to be resistance in the past. The RSI is rising and held in the bullish zone during the pullback with a MACD that is leveling. The RSI on a longer scale shows a possible Positive Reversal that would target 60.50. Support lower comes at 56.50 and 55 followed by 54.25 and 53. The reaction to the last 6 earnings reports has been a move of about 0.95% on average or $0.55 making for an expected range of 56 to 57.15. The at-the money July Straddles suggest a larger $1.25 move by Expiry Friday with Implied Volatility at 25% above the August at 16%. Short interest is negligible. There were buyers of the upside Calls and Call Spreads Friday and buyers are continuing there today. Open interest is heaviest at the 57.5 strike this week with.

Trade Idea 1: Sell the July 55/57.5 Strangle for a $0.38 credit.

Trade Idea 2: Buy the July 57/57.5 1×2 Call Spread for a $0.05 credit.

Trade Idea 3: Buy the July 56/55.5-55 1×2 Put Spread for free.

Trade Idea 4: Buy the July/August 57.5 Call Calendar for $0.37.

I like #4 for longer term upside with big open interest at 57.5 in July to draw it this week. #2 and #3 together can play both ways to resistance. And #1 gives a good range for weekly resistance and open interest.

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