Considering Our Options – $JPM April Put Spread

by CC March 27, 2015 1:37 pm • Commentary

A couple weeks ago we placed a bearish trade in JP Morgan Chase (JPM). The stock initially went against us, but has since sold off 4% in the last week making the trade a slight winner.  To recap, here’s the trade:

TRADE:  JPM ($60.55) Buy to April 60/55 Put Spread for 1.20

-Buy 1 April 60 put for 1.55

-Sell 1 April 55 puts at .35

With the stock now $59.50 (vs our $60.55 entry), the put spread is worth about 1.40 and is sitting just above its converged 50 and 200 day moving averages at around $59.10:

Screen Shot 2015-03-27 at 11.18.57 AM
3 month JPM from LiveVol Pro

The trade is about 48 deltas here and decay isn’t a big issue at this point as it’s only about 1-2c a day with potentially rising vol into the event counterbalancing some of that theta.

What happens in the broad market between now and JPM’s earnings report (April 14th) will determine how we manage the trade into the event. If the stock does break lower through those moving averages there’s not much support to speak of for a few dollars. At that point we’ll have to consider whether we want to risk those profits into a binary event. Our options at that point could be to sell half and let the other half ride or even adjust the put spread into a put fly, which wouldn’t book any profits but would take most of the premium at risk off the table and leave us with a potentially great risk/reward into earnings. In the other direction, if the market does in fact rebound from this week’s selling we’ll just keep a stop to make sure the position doesn’t get too far out of the money before the event. ($62ish?)

We’ll update on the site when we make any moves.