New Trade JPM – Jamie Dimon About to Get Grilled

by Enis June 12, 2012 10:09 am • Commentary

My CotD today detailed my long-term view on JPM‘s fallout from the London Whale.  I’ll be discussing the JPM charts on Talking Numbers today between 3:20 and 3:30 pm EST on CNBC.  Like I said, in the short-term, I’m going to look to fade any strength.  Though we don’t have much strength today (banks are weak overall after PNC commented about lower 2012 revenue numbers in a presentation), we do have a catalyst.  Jamie Dimon will be speaking in front of the Senate Banking Committee tomorrow.  The Senators are unlikely to give him a walk in the park.

Normally, I would say that this is not news upon which to trade.  Everyone in the market is well aware that CEO Dimon is likely to get grilled.  And JPM’s stock is already down 25% from its highs this spring.  But I think the crucial aspect of this CIO trading loss story is that the position is still outstanding.  It is too big to close out, and the Senators are going to want details on the exact position.  Tomorrow’s testimony will either shed further light on JPM’s current position, in which case other market players twist JPM’s wrists further by gunning against those positions, or Dimon will sidestep those questions, inviting increased scrutiny from regulators and lawmakers.  

My initial instinct was to sell 3 month upside calls on JPM as I feel comfortable that JPM will have a hard time getting above $35, even on a broader market rally.  But when I went to look at the options levels, I was surprised to find JPM implied volatility under 40, particularly with this Senate testimony and more importantly, the Greek elections this weekend.  So I decided to use July options to express my view of a short-term retest of 30-31 support in JPM over the next week.


TRADE: JPM ($32.80) Bought the July 31 Put for 1.14

Will look to close out of this on a 3-5% move lower in JPM

Break-Even on July expiration:

  • Profit below 29.86,
  • Losses of up to 1.14 btwn 29.86 and 31.00, max loss of 1.14 above 31.00
Trade Rationale:  Since I don’t expect implied volatility to drop much lower, this trade gives me a good chance to play for a quick move lower that might also coincide with higher vol, giving me 2 ways to make money on the options.  I don’t plan to hold this trade for more than a week, even though I bought July options.