JPMorgan Chase broke above 200 Tuesday and cleared a flat base with a 200.94 buy point.
One way to take a bullish exposure without risking too much capital is via a bull call spread. This might be a good in the current market.
Traders create a bull call spread by buying a call and then selling a further out-of-the-money call. Selling the further out-of-the-money call reduces the cost of the trade but also limits the upside.
Going out to the August expiration, a 200-strike call option was trading around $9.70 late Tuesday. The 210 call was around $5.
Max Profit On JPMorgan Stock Trade: $530
Buying the 200 call and selling the 210 call would create a bull call spread. The trade cost is $470 (the difference in the option prices multiplied by 100). The maximum potential profit would be $530 (the difference in strike prices, multiplied by 100 less the premium paid).
A bull call spread is a risk-defined strategy. So if JPMorgan stock closes below 200 on Aug. 16, the most the trade could lose is the roughly $470 premium paid.
Potential gains are also capped above 210. So no matter how high JPMorgan might go, the most the trade could profit is $530.
The break-even price for the trade is equal to the long call strike plus the premium. In this case that would equal 204.70.
In terms of trade management, if the stock dropped below 190, I would consider closing early for a loss.
According to the IBD Stock Checkup, JPMorgan stock is ranked No. 5 in its industry group. It has a Composite Rating of 95, an EPS Rating of 88 and a Relative Strength Rating of 88.
Earnings Risk For JPMorgan Stock Trade
JPMorgan Chase is due to report earnings in early July, so this trade would have earnings risk if held until then.
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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
