The investment banker and financial services company JPMorgan Chase & Co. (JPM), headquartered in Midtown Manhattan in New York City, publishes earnings on Tuesday prior to the opening bell. [JPM in Wikipedia]
Two other symbols, CSX and WFC, met the liquidity requirements for consideration but failed because their implied volatility was low relative to its most recent range, below the 60th percentile.
Implied volatility stands at 28%, placing it in the 65th percentile of the rise from 23% on Dec. 26l 2014 to 31% on Jan. 6.
The one standard deviation range from the current implied volatility, encompassing 68.2% of trades, suggests a potential gain or loss of 4.8% in the next 10 days, until options expire, and the two standard deviation range, covering 95% of trades, of 9.28%.
|Week||SD1 68.2%||SD2 95%||Chart|
Elliott wave analysis of the longer-term chart, on the left, shows JPM within a mature 3rd wave of a rise from October 2011. The internal count of wave 3 is poorly differentiated. However, the form of the wave suggests a slowing of the rise preparatory to a reversal. However, JPM will not have swung into a downtrend until the price drops below $54.02, or arguably, the slightly earlier low of $51.44.
Click on chart to enlarge.
|JPM 4 years 2-day bars (left), 90 days 4-hour bars (right)|
The decline from the Jan. 9 peak of $60.79 shows JPM in an upward retracement since Monday that has carried the price 2% above the decline's low, $59.27.
The primary trend is clearly down. The immediate trend is up. I must judge the direction for JPM to be ambiguous. The rating from Zacks Investment Research is neutral, providing no real guidance.
Earnings over the past year have all produced immediate upward movements. Given the fact that the macro-trend from 2011 is up, and the heavily weighted immediate trend is also up, my inclination is to construct a bull play.
JPM has liquid Weeklys in its options inventory, so I shall work with the JAN4 series, which trade for the last time on Jan. 23, 10 days hence.
The standard deviation ranges are skewed to the downside. With this options grid, the skewing forces me to leave much of the 1SD range unprotected in a bull play. And indeed, the grid forces me to pick a low probability strike price in order to get an acceptable risk/reward ratio.
The risk/reward ratio of the proposed trade is 19:10, or very close to a 2:1 ratio, compared to the 3:1 or 4:1 that I usually end up with. However, the chance of expiring in the money for maximum profit is nearly 50% -- even odds.
Decision for My Account: SUPERCEDED, see the note at the top of this analysis
-- Tim Bovee, Portland, Oregon, Jan. 13, 2015
My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".
Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading.
Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.
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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.License
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