Despite JPM's choppy trading, call options are popular
Banking giant JPMorgan Chase & Co. (NYSE:JPM) is flat today, trading at $105.39, as Wall Street digests JPM CEO Jamie Dimon's annual letter to shareholders, in which he weighed in on the U.S. education system and higher taxes for wealthy Americans. If history is any guide, though, the Dow stock could find itself in trouble in the near term.
Taking a look at the charts, JPM stock has been on the rebound since skimming the $98 level late last month, but is now trading near the overhead $107 level, which has provided a stiff ceiling in 2019. Plus, this region is home to the equity's 200-day moving average, and previous tests of resistance here have preceded weak price action in the shares.
Specifically, there have been two other times in the past three years when the stock has come within one standard deviation of this trendline after a lengthy stretch below it, resulting in an average one-month drop of 10.5%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. A similar fall would drag JPM stock down to the $96 neighborhood for the first time since early January.
Options bulls have been betting on JPM ahead of the big bank's earnings report, slated for release ahead of the open next Friday, April 12. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the security with a 10-day call/put volume ratio of 3.83. This ratio ranks 2 percentage points from an annual high, which means calls have been bought to open over puts at a much faster-than-usual rate during the past two weeks of trading.
It's a similar trend today, with roughly 32,000 calls and 11,000 puts on the tape -- a slight uptick to what's typically seen at this point in the session. The weekly 4/5 106-strike call is most active, and it looks like new positions are being purchased here for a volume-weighted average price of $0.21, making breakeven for the call buyers at this Friday's close $106.21 (strike plus premium paid).