JPM: Unusual Options Activity Led Us to An Interesting Chart

by Dan June 4, 2012 3:28 pm • Commentary

JPM has had one heck of a ride over the last 60 days….the stock was massively out-performing most of its peers, making new 52 week highs in late March, only to have a huge fall from grace (for mostly stock specific reasons), of almost 34%, and quickly approaching last year’s lows of about $28.

2 yr JPM chart from Bloomberg

Forget the recent highs, those won’t be seen for a very long while in our opinion, we want to focus on the 52 week lows, that at this point seem to be coming to a theater near you, and what that means for implied vol in the name.

There were 2 decent size trades in the options pits that got us thinking…..presumably it was the same buyer, but someone bought 14,000 of the JPM Sept 20 Puts for .58 this morning, and then again reloaded this afternoon paying the same price for another 8400 (26k have traded on the day so far).

This trade was not tied to stock, meaning that it was likely not a “vol trade”, but the buyer could be taking advantage of what is perceived to be cheap downside vol on a relative basis.

Over the last 5 years there have only been 2 periods where the stock has traded below $30, in late 2008/early 2009, and in 2011.  In both instances, (as the chart below shows) 30 day implied vol traded well above 50.  Now at the money 30 day implied vol is only about 45, which given the stock specific news and the global macro backdrop, this could be a good buy, at least from a vol perspective.

[caption id="attachment_12736" align="aligncenter" width="300" caption="5 YR chart of JPM Price vs Implied Vol from Bloomberg"][/caption]