JPM Analysis

Update 7/25/2015: I exited part of JPM on July 22 when the stock turned against my position and allowed the remainder to expire without value for maximum profit on July 25. 

Details: I exited six iron condors and in addition, the remaining 14 call pairs, which were a bear call spread, on July 22. The remaining bull put spreads expired on July 25.

Shares rose by 2.6% over 10 days, or a +91% annual rate. The optons produced a 37.1% 7ield on debit, for a +1,325% annual rate.

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The financial company JPMorgan Chase & Co. (JPM), headquartered in New York City, publishes earnings on Tuesday prior to the opening bell.

[JPM in Wikipedia]

JPM

Ranges

Click on chart to enlarge.

JPM at 11:02 a.m. New York time, 30 days hourly bars

Implied volatility stands at 20.3%, which is 1.4 times the VIX, a measure of volatility of the S&P 500 index. JPM’s volatility stands in the 59th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	69.40	70.85	68.39	69.38
Lower	66.50	65.05	65.21	64.54
Gain/loss	21%	4.3%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

I shall use the JUL4 weekly series of options, which trades for the last time 11 days hence, on July 24.

Iron condor, short the $70.50 calls and long the $71.50 calls,
short the $67 puts and long the $66 puts,
sold for a credit and expiring July 25.
Probability of expiring out-of-the-money

JUL4	Strike	OTM
Upper	70.5	85.4%
Lower	66	74.3%

I skewed the profit zone toward the upside in order to account for the strong rising trend since July 8.

The premium is $0.24, which is 25% of the width of the position’s wings.The stock at the time of purchase was priced at $67.92.

The zone of profit in the proposed trade covers a $2.25 move either way. The biggest immediate move after each of the past four earnings announcements was $2.42, and the average was $1.40.

The risk/reward ratio is 3:1, a bit high. That's the price I pay for a wide profit zone.

Decision for My Account

I've opened a position in JPM as described above.

-- Tim Bovee, Portland, Oregon, July 13, 2015

References

My volatility trading rules can be read here.


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Disclaimer

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.

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Based on a work at www.timbovee.com.