JP Morgan (JPM) recently broke back above the 21 and 50-day moving averages and showing strong accumulation.
The Barchart Technical Opinion rating is a 24% Buy with a weakest short-term outlook on maintaining the current direction.
Long term indicators fully support a continuation of the trend.
JPM rates as a Strong Buy according to 12 analysts with 2 Moderate Buy ratings and 6 Hold ratings.
JPMorgan Chase & Co. is one of the largest financial service firms in the world. JPMorgan organizes its business through five reportable segments: Consumer & Community Banking segment serves consumers and businesses through personal service at bank branches and through automated teller machine, online, mobile and telephone banking.
Corporate & Investment Bank offers a wide range of IB, market-making, prime brokerage, and wholesale payments services to global client base of corporations, investors, financial institutions, government and municipal entities.
Commercial Banking segment provides lending, wholesale payments and investment banking services to corporations, municipalities, financial institutions and non-profit entities.
Asset & Wealth Management segment provides services to institutions, retail investors and high-net-worth individuals. Corporate segment consists of Treasury & Chief Investment Office and Other Corporates.
Today, we’re going to look at a bull put spread trade.
A bull put spread is a bullish trade that also can benefit from a drop in implied volatility.
The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.
JPM BULL PUT SPREAD
To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.
Selling the November 24 put with a strike price of $143 and buying the $141 put would create a bull put spread.
This spread was trading yesterday for around $0.46. That means a trader selling this spread would receive $46 in option premium and would have a maximum risk of $154.
That represents a 29.9% return on risk between now and November 24 if JPM stock remains above $143.
If JPM stock closes below $143 on the expiration date the trade loses the full $154.
The breakeven point for the bull put spread is $142.54 which is calculated as $143 less the $0.46 option premium per contract.
Conclusion And Risk Management
One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $46, so we could set a stop loss equal to the premium received, or a loss of around $46.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
