Checking Our Calendars – JPM

by CC October 4, 2018 2:01 pm • Trade Updates

A couple of weeks ago Dan took a look at JP Morgan (JPM) with an eye towards its upcoming earnings on October 12th. At the time, JPM had just stopped on a dime at its prior high from January, (just below 120) and pulled back to 116.50 at the time of the post. With a couple weeks left to expiration and a clearly defined resistance level Dan detailed to trade ideas into earnings, selling this week’s options and buying next week’s. The stock is down slightly since then and the near term options are set to expire tomorrow, so it’s a good time to check back in. First, let’s look at the bullish version, a call calendar, from September 25th:

Bullish Call Calendar: JPM ($116.50) Buy Oct 5th / Oct 12th 119 call calendar for 40 cents

-Sell to open 1 Oct 5th weekly 119 call at 30 cents

-Buy to open 1 Oct 12th weekly 119 call for 70 cents

With the stock now 114.50 this trade hasn’t lost much, even with the stock lower by $2. It’s worth about .38. The calendar did its job as the Oct 12 calls are now only worth about .38 and the short Oct5th calls essentially worthless. There’s not much to be done on this trade right now. But if the stock continues lower it may make sense to rethink being long the 119 call if it looks too far out of the money into the event. On the flip side, if the stock bounces towards that strike before the event it would make sense to sell a high call in the same expiration to reduce risk and create a call spread.

Now to the bearish calendar:

Bearish Put Calendar: JPM ($116.50) Buy Oct 5th / Oct 12th 114 put calendar for 50 cents

-Sell to open 1 Oct 5th weekly 115 put at 65 cents

-Buy to open 1 Oct 12th weekly 115 put for $1.15

With the stock now 114.50 this trade worth about 1.10 versus the initial .50 at risk. That’s a nice little win but for those looking to take this position into the event for a bigger win something needs to happen with the short Oct5th 115 call before tomorrow’s close because that put is now in the money.

There are two rolls that make sense here, the first is to simply roll the entire trade lower, selling this calendar at 1.10 and booking .60 in profits that can then be used to buy the same expirations (tomorrow and next friday) 113 put calendar. Right now that’s offered at about .90 so that roll would reduce overall risk by .20 and leave a similar position on that can take advantage of a quick .18 in decay by tomorrow’s close if the stock is above 113.

The other roll is to give it a little time and look to buy back tomorrow’s short 115 put before tomorrow’s close, then roll that short put to next week, ideally the 100 put. The problem with that roll right now is it would actually cost money, with the Oct5th 115 puts about .65 and the Oct12th 110 puts about .50. That would leave the Oct12th 115/110 put spread for a cost of .75, pretty good but it would be adding risk, not booking profits. But that’s worth keeping an eye on because if the stock were to bounce a little, back towards 115 (or slightly above) that roll may be able to be put on for a credit, taking profits and extending the view out to the event.