Many eyes are on JP Morgan (JPM – 34.40) as the company reports their earnings before the market open tomorrow. In an unusual move, the company is planning on speaking for two hours, which is longer than the normal one hour conference call normally associated with an earnings call. Also – JPM has reported their earnings on Friday the 13th three quarters in a row – it means nothing in the reality – but is a fun thing to throw out there.
The feeling is we will get some extra volatility out of JPM compared to a normal trading day and option traders are all about volatility. With the stock at 34.40 options with a 34 or 35 strike are worth checking out – specifically the weekly options that expire tomorrow. The 34 Call is offered at .96 and the 35 Call is offered at .50. The 34 Put can be bought for .56. A typical volatility play would be a straddle or strangle. A straddle could be put together using the 34 call and put for a total cost of 1.52. This trade would be profitable with JPM over 35.52 or below 32.48 tomorrow on the close. A strangle also comes into play buying the 34 strike put and 35 strike call for a total cost of 1.06. The stock would need to be below 32.94 or over 36.06 to turn a profit.
On percentage terms the stock needs to rally 3.26% or drop 5.58% to turn a profit for the straddle or rise 4.83% or drop 4.24% to result in a profit for the strangle – on average slightly more than the 3.64% drop seen in JPM last quarter.
Note – pricing of options and stock are based on 11:30 central time today.