JPMorgan Chase Stock Still Oozes Profit Potential
Investors piled into JPMorgan Chase (NYSE:JPM) stock after its earnings report late in July. Luckily, I had already shared a winning trade that profited well from the rally. Today, I want to reset another one in JPM stock.
I wrote about the potential technical upside catalyst above $108.75 and boy did it deliver. The stock rallied well past my targets. Momentum buyers stepped in as we’d noted they would. Nevertheless, there are still opportunities to profit from the strength in the JPM bid.
Fundamentally, JPM stock, much like most other banks, is cheap. It sells at a price-to-earnings ratio of 14 and a price-to-book close to parity. So owning JPM stock, especially if at a discount from the current price, is not going to be a financial debacle. And therein lies the opportunity.
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I am optimistic on the stock market in general. The upside potential is more realistic then the bear thesis. Without new headlines or black swans, I want to be long stocks at this point in time. We have central banks that are still committed to growth, even though the U.S. fed is in a rate-hiking cycle.
Technically, JPM spiked into the upside potential but for the past few days it has faded into an upcoming pivot zone. On the way down, those tend to be support. So the Bulls have the opportunity to stabilize before the next leg higher. Conversely, there could be some risk of retesting $112-per-share.
Even though I favor the upside scenario, with today’s trade, I will again use options where I can choose my level of risk and leave plenty of room for error. This is to create income without any out-of-pocket expense.
I prefer this to risking $115-per-share and hoping for a rally to profit. With my setup, JPM stock can fall precipitously and I can still retain my maximum potential gains.
How to Trade JPM Stock
JP Morgan is the cream of the crop when it comes to banks and it rarely gives Wall Street a reason to sell its stock. So, I want to stay long JPM stock and roll my profits forward through 2018.
The Trade: Sell JPM Dec $105 put for $1.9. Here, I have an 85% theoretical chance of success. Otherwise, and if price falls below it, I would suffer losses below $103.1.
Selling naked puts is daunting. Those who want to mitigate that risk can sell spreads instead.
The Alternate Trade: Sell the JPM Dec $105/$100 bull put spread. Here my risk is smaller, but the spread would yield 15% on risk. Compare this with risking $116 to buy the shares and leaving no room for error.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
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