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JPMorgan Chase Attracts Weekly Option Bears

Skeptical speculators are scooping up JPM's weekly 36 puts

by 8/30/2012 11:56 AM
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The shares of JPMorgan Chase & Co. (NYSE:JPM - 36.85) are in danger of finishing beneath their 200-day moving average, which served as resistance from mid-May through early August. What's more, it looks like a slew of options traders are expecting the stock to extend its retreat over the short term, judging by today's affinity for 36-strike puts.

Around midday, the equity has seen roughly 17,000 puts change hands -- on pace with the norm. However, the weekly 36 strikes are garnering quite a bit of attention, with more than 2,350 traded at the 8/31 strike, and more than 2,000 of the 9/7 puts exchanged. Implied volatility on the put expiring tomorrow was last seen higher, and volume has exceeded open interest at the put expiring next Friday -- both signs of newly opened positions. Plus, the majority of the puts have traded at the ask price, suggesting they were bought.

Specifically, the volume-weighted average price (VWAP) of the puts expiring tomorrow is $0.04, while the VWAP of next week's puts is $0.20. In other words, the 8/31 put buyers will begin to profit if the shares of JPM breach the $35.96 level (strike minus premium paid) before the closing bell tomorrow. Meanwhile, the 9/7 put buyers have a little more wiggle room, as far as time goes, and will reap a reward if JPM falls beneath the $35.80 level by the end of next week.

However, today's affinity for short-term puts runs counter to the trend. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.98 ranks in the 33rd percentile of its annual range, implying that short-term options speculators have been more call-skewed just one-third of the time during the past year. Furthermore, the overhead 37, 38, 39, and 40 strikes are heavily populated in the front-month series of options, with roughly 429,000 outstanding calls combined. In the short term, this abundance of bullish bets could translate into options-related resistance for JPM.

Meanwhile, despite calling 2012 a technical wash so far, and regardless of its fundamental issues (London Whale, anyone?), JPM remains beloved among the analyst community. Currently, the security boasts 12 "strong buys" and four "buy" endorsements, compared to six lukewarm "holds" and just two "sell" or worse recommendations. Plus, the consensus 12-month price target rests at $44.91, implying expected upside of 20% to JPM's closing price of $37.30 on Wednesday, and in territory the stock hasn't explored since mid-April.

Should JPM continue to struggle on the charts, an unwinding of optimism in the options arena, or a wave of downgrades and/or price-target cuts, could exacerbate selling pressure on the financial concern.

Daily Chart of JPM since May 2012 With 200-Day Moving Average


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