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JPMorgan Chase & Co (NYSE: JPM) opened at $48.81. So far today the stock has hit a low of $47.65 and a high of $48.81. As of 11:15, JPM is trading at $47.87, down $0.75 (1.6%).After hitting a one-year high of $53.25 in May, the stock has dipped over the past 10 weeks. In what Jim Cramer calls a "vicious bear market" for financials, he warns against shorting any stock in the sector, but even after this warning, he names JPM as a stock he would short. Cramer was dissatisfied with the company's latest quarter and doesn't like the dividend, either. Recent technical indicators for JPM have been bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $52.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk and leverage returns. For this particular trade, we will make an 11.1% return in just 2 months as long as JPM is below $52.50 at September expiration. JPM would have to rise by 9% before we would start to lose money.
JPM has not been above $52.50 in the past year except for a few days in April and has shown resistance around $50.50 recently. This trade could be risky if the sub-prime troubles ease and the financial sector gets underway again, but even if that happens, this stock could have trouble getting over $50, where it found some resistance at its 50 day moving average.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: At publication time, Brent controls a long hedged position in JPM. Both that trade and the one above can be profitable at the same time.
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Reader Comments (Page 1 of 1)
7-25-2007 @ 2:57PM
Prescott said...
J.P. Morgan Chase is in serious legal and financial trouble. 1) They have been violating the two criminal settlement agreements [one with the SEC, the other with the NY District Attorney's Office {Manhatten Office}] they signed in July 2003 to avoid prosecution in the Enron case. Their violations have been covered up by the SEC thanks to Stephen Cutler [former bureau chief, Division of Enforcement - SEC], the very man who negotiated the settlements, who today is living the high life as the J.P. Morgan Chase General Counsel.
2) In addition, Chase has been defrauding its shareholders in its defense of the lawsuit "In RE Payment Card Interchange Fee." [Federal Court NY] There will be upcoming shareholder litigation on this, and, their violations of the criminal settlements, all connected to the real liability associated with the Interchange Fee that has never been litigated, but, Chase et al knows all about it and has never disclosed the several trillion dollars [industry wide] in joint & several liability in its SEC filings as required by securites law.
All in all, J.P. Morgan Chase is facing enough new liability to put them in bankruptcy several times over, which is not good for the Derivative Market where Chase controls about 50% of the market. Wall Street better look out. A Washington D.C. law firm has all the physical evidence to back up these allegations and is about to go public.