Financial giant JPMorgan Chase ( JPM ) has been a top performer over the last several months, and with the Federal Reserve expected to announce its next rate hike this month, the stock could build on its recent gains. JPM shares have appreciated by 5.0% since the start of the year.
JPM was recently trading at $91.63, down $2.35 from its 12-month high and $34.58 above its 12-month low. Technical indicators for JPM are bullish with a strong upward trend. The stock has recent support above $89.60 and recent resistance below $94.00. Of the 21 analysts who cover the stock, nine rate it a "strong buy", and 10 rate it a "hold". The stock receives S&P Capital IQ's 4 STARS "Buy" ranking.
The Federal Reserve lifted rates for just the second time since the financial crisis in December, but it is widely expected to announce another rate hike this week. The previous rate hike, along with anticipation of reduced regulations on the financial sector and additional rate hikes this year, have pushed financial stocks higher. If the Fed follows through with an expected rate hike this week shares of big banks like JPM will move higher. While interest rates remained near zero since the financial crisis, big banks were limited on the margin they were able to get on loans they made their customers, but as rates rise, margins will increase and higher interest income will trickle down to stronger earnings and earnings growth. It seems a near certainty that rates will rise this week, and I expect JPM shares to rally on the news.
Stock Only Trade
If you want to set up a bullish hedged trade on JPM, consider a June 77.50/72.50 bull-put credit spread for a 30-cent credit. That's a potential 6.4% return (23.8% annualized*) and the stock would have to fall 15.1% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider a June 100/105 bear-call credit spread for a 50-cent credit. That's a potential 11.1% return (41.4% annualized*) and the stock would have to rise 9.7% to cause a problem.
Covered Call Trade
Originally published on InvestorsObserver.com