Last week in this space we highlighted some short and long dated put buying in the financial select etf, XLF, (Chart of the Day – $XLF: Bank Teller?) in front of 50% of the etf’s holdings set to report Q3 results and offer Q4 guidance in the next month.
Shortly after the open today, when JPM was trading $59.25, there was an opening buyer of 10,000 of the Oct 58 puts for $1.54. These puts break-even at $56.46, down almost 5% from current levels.
JPM reports Q3 results on October 13th prior to the open and the implied one day move in the options market on Oct 13th is about 4%, while the price of the at the money straddle for October expiration is about 6%.
There has been a lot of chatter on the street about which U.S. banks fared well in August’s market swoon, and which didn’t. Given the perception that U.S. banks are under fairly strict regulation as it relates to proprietary trading, and the deleveraging that has taken place since the financial crisis, any gaping holes in banks reports will certainly raise eyebrows.
A quick look at JPM’s 2 year chart shows the stock below a fairly interesting technical level at $60, with little to no support until the mid $50s:[caption id="attachment_57230" align="aligncenter" width="600"] JPM 2 year chart from Bloomberg[/caption]
As far as the purchase of short dated puts into a potentially volatile event, a quick look at JPM’s implied volatility over the last 5 years shows the recent spike to multi year highs at 40%, but since pulling back to the low 30s. But it was as high as 70% in 2011 at the height of the European Sovereign Debt crisis, and in the mid 40s, in the aftermath of losses revealed in a London based trading unit in 2012:[caption id="attachment_57231" align="aligncenter" width="600"] JPM 5 yr chart of 30 day at the money implied vol from Bloomberg[/caption]
Options prices appear expensive, and if the buyer was merely making a directional bet on a move lower over the next two weeks, then it’s important to note that they better get some help from the broad market as the largest one day move following earnings for JPM in the last three years has been about 3.5%, while the 4 qtr average has been a little less than 2%.