Fed Decision Ignites JPMorgan Chase & Co. (JPM) Options Pits

JPMorgan Chase & Co. (NYSE:JPM) options volume is accelerated following the Fed's policy decision

by Josh Selway

Published on Jun 16, 2016 at 1:58 PM
Updated on Jun 16, 2016 at 1:59 PM

Bank stocks and the broader financial sector are taking a hit today, following the latest round of central bank decisions. In particular, being highly exposed to potential "Brexit" shocksJPMorgan Chase & Co. (NYSE:JPM) has lost 0.3% at $61.78 -- though the shares have rebounded after dipping below $61 earlier. Moreover, JPM is back above its 80-day moving average -- which could signal gains in the near term, since the stock has moved higher after six of the past 10 times it's touched this trendline, looking five days out. In the meantime, JPM options are trading at twice the expected intraday volume. 

Much of today's activity has taken place at the June and August 65 calls. It appears one trader may have rolled out his bullish bet by closing out 13,087 contracts of the June calls and buying to open an identical block of the August calls -- perhaps hoping a future rate hike from the Federal Open Market Committee (FOMC) lifts bank stocks. Other traders are possibly selling to close the July 67.50 call, throwing in the towel after yesterday's Fed decision failed to boost the shares. 

Before today, traders had been buying to open puts over calls on JPM at a rapid-fire pace at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the stock's 10-day put/call volume ratio across these exchanges of 1.62 sits just 1 percentage point from an annual high. 

Skepticism has also picked up outside the options arena, with short interest on JPM climbing almost 15% in the latest reporting period. Still, the long-term trend shows short interest declining on the stock, as there were 44 million JPM shares sold short last June, compared to just 26.5 million now. 

Analysts, meanwhile, have kept a positive outlook on the bank stock, despite the uncertainty surrounding the Fed. Thirteen of 18 analysts covering JPMorgan Chase & Co. (NYSE:JPM) say to buy the shares, and the stock's average 12-month price target stands in all-time-high territory, at $71. 

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