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JPMorgan Option Trader Bets $4M On Downside Ahead

Wayne Duggan

Shares of JPMorgan Chase & Co. (NYSE: JPM) traded higher Wednesday as traders become increasingly optimistic that a combination of Federal Reserve stimulus and a potential COVID-19 vaccine can help big banks weather the economic downturn and get back on track — even with interest rates at zero. 

Despite concerns over the impact of emergency interest rate cuts and loan losses, JPMorgan shares were rocketing higher in the past week. Several options traders made large bets on Wednesday that the stock is headed lower.

JPMorgan shares were up 3.06% at $91.32 at the time of publication Wednesday afternoon.

The JPMorgan Trades

On Wednesday, Benzinga Pro subscribers received five option alerts related to unusually large JPMorgan option trades:

  • At 9:43 a.m. ET, a trader sold 898 JPMorgan call options with a $90 strike price expiring on Sept. 18. The contracts were sold near the bid price at $8.579 and represented a $770,394 bearish bet.
  • At 9:48 a.m. ET, a trader sold 441 JPMorgan call options with a $90 strike price expiring on Friday. The contracts were sold near the bid price at $2.46 and represented a $108,486 bearish bet.
  • At 9:59 a.m. ET, a trader bought 367 JPMorgan put options with an $91 strike price expiring on June 19. The contracts were purchased near the ask price at $4.30 and represented a $157,810 bearish bet.
  • At 10 a.m. ET, a trader bought 1,600 JPMorgan put options with a $110 strike price expiring on Jan. 15, 2021. The contracts were purchased at the ask price of $25.051 and represented a more than $4-million bearish bet.
  • At 11:37 a.m. ET, a trader sold 327 JPMorgan put options with a $91.50 strike price expiring on June 19. The contracts were sold near the bid price at $4.255 cents and represented a $139,138 bullish bet.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader. Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest JPMorgan option trades, there’s certainly a possibility they could be a hedge on a large position in JPMorgan stock.

Can The Fed Save Bank Stocks?

Wednesday’s large option trades came the same day that Odeon analyst Dick Bove upgraded JPMorgan from Hold to Buy and set a $105.75 price target for the stock. Bove said investors can expect rising loan losses and dividend cuts for big banks.

The Federal Reserve’s massive stimulus measures have pumped an incredible amount of money into the financial system, Bove said. 

"The creation of trillions of dollars will result in higher earnings for those banks that are able to capture the new funds and put them to use."

The $4-million put buyer on Wednesday must disagree with Bove’s take. The puts have a break-even price of $84.95, suggesting at least 7.2% downside over the next eight months.

Bullish sentiment among StockTwits messages mentioning JPMorgan was at 78.1% on Wednesday, up from its 2020 low of 41.9% on Feb. 6.

  JPM Chart by TradingView new TradingView.widget( { "width": 680, "height": 423, "symbol": "NYSE:JPM", "interval": "D", "timezone": "Etc/UTC", "theme": "light", "style": "1", "locale": "en", "toolbar_bg": "#f1f3f6", "enable_publishing": false, "allow_symbol_change": true, "container_id": "tradingview_9dc9f" } ); Benzinga’s Take

JPMorgan’s balance sheet is much healthier this time around than in the 2008 financial crisis, and the COVID-19 outbreak does not appear to be threatening the stability of the global financial system given the Fed’s willingness to provide liquidity. In addition, U.S. banks navigated zero interest rates for years during the financial crisis recovery, and they are much more efficient today than a decade ago.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

What Negative Interest Rates Would Mean For Banks, Stocks And The Average American

How To Read And Trade An Option Alert

JPMorgan CEO Jamie Dimon. Benzinga file photo by Dustin Blitchok. 

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