ORIGINAL POST MAY 20th 2011:
Wall Street has it’s share of over used, generally nonsensical terms that add little to no value to individual investors. One that I hate is best of breed. You hear it on the teevee a lot, or by analysts trying to differentiate between names in their coverage….the fact is that most large cap names are very correlated and most out-performance doesn’t last in challenging times.
And that’s what could happen this summer….maybe not a crash but a 10% sell off from the highs? Very possible.
Financials have dramatically under-performed the overall market and it is my belief that the market will not be able to make a new high without them participating. I just don’t see that happening.
C, BAC, GS and MS all act like crap and while you can probably press these, maybe another 10% down, I would prefer to go after JPM. C and BAC are both down about 13% ytd while GS (for some stock specific issues) is down 18% ytd…..JPM is actually up 2% on the year. Te chart below displays the massive under-performance by financial stocks to the SPX and also shows JPM’s out-performance to its peers…..
Longs should consider stock replacement but I want to make an outright bearish bet. I just bought the July 42 Puts for 1.20. Will try to leg into the Put spread or fly as stock goes lower. I want to look to July as it should capture Q2 earnings report estimated to be July 15th. I am Considering the following trades:
TRADE 1: JPM (43.20) BUY July 42/39 Put Spread for .75
-Buy July 42 Put for 1.20 and
-Sell July 39 Put at .45
Break-Even on July Expiration:
above 42 lose .75
btwn 42 and 41.25 lose up to .75,
btwn 41.25 and 39 make up to 2.25,
below 39 (down10%) make 2.25 or ~3x your money
OR LOOK TO LOWER PREMIUM MORE TACTICAL PLAY SHORT TERM TRADE
TRADE 2: JPM (43.20) June 42/40/38 Put Fly for .25
Buy 1 Jun 42 Put for .62
-Sell 2 Jun 40 Puts at .50 (.25 each)
-Buy 1 June 38 Put for .13
Break-Even on June Expiration:
Btwn 42 and 41.75 lose up to .25,
above 42 lose .25, btwn 41.75 and 40 make up to 1.75,
at 40 make full 1.75,
btwn 40 and 38 payout trails off,
below 38 lose .25