Markets

JPMorgan (JPM) short call trade alert

Shares of JPMorgan Chase & Co. (NYSE: JPM ) might be hard-pressed to rally much higher than their current level, according to one investor who appears to have sold a hefty number of in-the-money calls. Options action during morning trading suggests an investor is willing to cap gains on a short call position to bet on limited upside in the banking giant.

At 10:15 a.m. EDT, a block of 4,000 JPM January 2011 39 calls changed hands for $4.75 per contract. Current open interest in this line is 2,500 contracts, indicating the investor most likely traded this block of calls to open. A look at time and sales shows the investor opened these short call positions to bet that JPM will be trading lower than $43.75 at January 2011 options expiration.

A closer look at time and sales shows the investor bought roughly 160,000 shares of stock for $40.67 simultaneously with the short call positions as part of a delta-neutral strategy. By tying the options action to stock, the investor is effectively trading volatility instead of just direction.

The options position will turn profits if JPM shares are trading lower than the strike price at options expiration in January 2011. Maximum gain on this trade is the credit collected, but investors will lose money if the stock is trading higher than the breakeven price. If the stock soars higher during the next six months, the investor could theoretically suffer unlimited losses to the upside.

JPM has not announced any notable news since its earnings release on July 15. The company announced earnings of $1.09 per share and beat estimates by 39 cents. The stock dropped 16 cents to $40.53 during morning trading and is trading roughly 13% higher than its recent low of around $35.80.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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