Chart of the Day – $JPM: Caveat Emptor When it Comes to Unusual Activity

by Dan March 30, 2015 3:51 pm • Chart of the Day• Education

A rising tide is lifting all boats in the financial sector today, led by shares of JPM which are up 3% after being featured on the cover of Barron’s this past weekend (JPMorgan Rising).  There was a time when financial media was far less ubiquitous, and less easily accessible, and outlets like Barron’s moved stocks a lot.  But in 2015, for a Barron’s feature to move a $220 billion market cap stock like JPM up 3%, seems a tad nuts.

To be fair the S&P 500 is up 1.3%, and most of JPM’s peers are up between 1.5% and 2%, but JPM’s out-performance off an article seems excessive.  And I would say this: if you are buying JPM up 3% on the day solely on the Barron’s cover, you may want to consnider your next bit of elective surgery to be neutering.

Shortly after noon there was a massive roll in calls, and it was reported to be bought:

When the stock was just $61.29 a trader sold to close 51,000 April 60 calls at 1.61 and bought to open 54,000 June 60 calls for 2.80

So it appeared to be a bullish roll with a trader rolling the view out to June.  When we see big trades like this we will often times look back to see when the closing portion first traded.  Here it was – on February 12th we highlighted the April 60 calls:

JPM – saw a large roll of an overwrite (short call against long stock for yield enhancement), when stock was $59.69 a trader bought to close 49,000 April 57.50 calls for 3.30 and sold to open 61,000 April 60 calls at 1.81.  The call-away level is now $61.61, fairly tight with stock hovering below $60.

How did we know these April calls were sold as part of an overwrite?  Well, a quick look at the chart of implied vol in this options (white line below) shows that IV declined for days after the Feb 12th trade, most likely indicating that the April 60 calls were in fact sold to open:

JPM April 60 calls implied vol ytd from Bloomberg
JPM April 60 calls implied vol ytd from Bloomberg

So could today’s roll be mis-reported as a bullish roll instead of a roll of an overwrite against long stock? Possibly, as there was only 71,000 of open interest in the April 60 calls, and this is clearly closing the leg initiated on Feb 12th.

Many (including myself earlier in Quick Hits) took the floor broker’s reporting of the trade at face value as a bullish roll.  But if in fact the April options that looked to trade on the bid (implying sold), and the new position in June trading on the offer (implying bought) was actually the other way around, that means trading off this info could get you turned all around. Which is why we often go way out of our way to deter traders from merely blindly following unusual activity.  The fact that I had to spend a decent amount of time trying to figure this out highlights why options activity isn’t so black and white.  I can honestly say that while I have seen this trade reported by a more than a couple services as a bullish roll it doesn’t look like a slam dunk that it actually was. We see this on Twitter a lot during the day where activity is blatantly mis-reported (in a lot of cases by people that want to believe the flow is reinforcing their existing position). And sometimes it creeps into more official services. And sometimes despite a lot of effort to get to the bottom of things we even get it wrong. So be careful out there!

For those who want to read more about our thoughts on Unusual Activity here are a couple posts from last year:

MorningWord 12/4/14: Unusual Activity Inside Baseball

Unusual Options Activity: Why it Can Matter & Why it Usually Doesn’t