It is a beautiful Wednesday morning and I am excited about the possibilities inherent in options trading. Today, we will examine the options of JPMorgan Chase & Co. (NYSE:JPM). JPMorgan is one of the biggest banks in the United States and it is probably the bank with most diverse product/service offering. JPMorgan with its market capitalization of $279.71B provides investment banking; financial services for consumers and small businesses; commercial banking; financial transaction processing; asset management and private equity.
Why Are We Looking at JPMorgan Today?
The shares of JPMorgan declined 1.47% yesterday before the stock closed down at $62.31 per share; hence, it would seem strange that I am covering JPM call options today. However, the performance of a stock in a single trading session is never enough to judge the prospects of a company going forward. The shares of JPMorgan actually recorded an impressive surge to form a new 52-week high of $68.48 on April 15 and the action leading up to that rally is the focus of today’s piece.
On April 14, JPMorgan reported its first quarter (Q1 2014 PDF Download) earnings that beat the consensus analyst recommendation in the top and bottom lines. Highlights of the first quarter earnings are presented below:
JPMorgan reported earnings of $1.45 per share to beat the consensus estimate of $1.39 per share and to outperform earnings of $1.29 per share from the comparable quarter in 2014
The company reported revenue of $24.8B to beat the consensus estimate of $24.4B and to outperform revenue of $23.9B from the same quarter in 2014
The payment of an after-tax legal expense of $487M impacted a $0.13 per share decline in earnings but it underscores the company’s commitment to settling its legal charges
All the bank’s segment except the Corporate segment recorded year-over-year improvements as Corporate and Investment Bank recorded a 19% annual improvement and its Commercial Banking segment recorded an 11% annual increase
Takings from the Chart
I refrained from writing about trading JPM options in the days preceding and the days immediately after its earnings release because I knew that emotions were running high in the market. Now, the profit-chasers seem to be done with JPM, the excesses seem to have been exhausted and we can now trade JPM options in a “near-perfect” market environment in which we can make educated decisions.
The chart above provides valuable insight into how the shares of JPMorgan should be traded going forward. The shares of JPMorgan have traded in a ragged and jagged manner marked with crests and troughs for much of the last year due to the repressive regulatory atmosphere for banks.
However, the stock started a breakout trend (blue arrow) in the last six months and the recent first quarter earnings have established the trend. The shares of JPMorgan have been trading in a range marked with a $59 support and a $62 resistance and the recent rally has established a breakout above $62. The shares of JPMorgan have regressed towards $62 again but it appears that the support will hold at $62 going forward.
How to Trade JPM Options
JPMorgan is still a solid stock fundamentally and I posit that new highs will follow if the support should hold at $62. For one, the stock’s 50-day moving average ($60.65) is greater than its 200-day moving average ($58.78); hence, we can easily surmise that the stock is in an uptrend. More so, the Fed is on track to raise interest rates and banks will be better positioned to record better net interest margins and profits in the short to medium terms. I recommend buying the JPM Sep 2015 65.000 call (JPM150918C00065000) at an asking price of $1.50.
— Daily Option Alerts