How Options Traders Doubled Their Money On This Big Bank Bet

Breaking down a big winner from Schaeffer's Weekly Options Trader

Managing Editor
Jun 29, 2018 at 10:16 AM
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Subscribers to Schaeffer's Weekly Options Trader more than doubled their money with the JPMorgan Chase & Co. (NYSE:JPM) weekly 6/29 110-strike put we recently recommended. We're going to take a look back to see why we expected the bank stock to struggle, and how the options trade unfolded.

At the time of our recommendation on June 14, JPM shares had begun to encounter resistance at their 80-day moving average, a trendline that had acted as support back in early February. In addition, the equity had formed a bearish descending triangle pattern, with weakening support at the $106 level having already been tested four times since February. 

What's more, JPM was featured on CNBC’s Fast Money as one of three bank stocks to buy after the Fed rate hike, even though it fell 7.7% after the March hike. This set things up for a contrarian view to ignore the expert opinion and follow the recent past.

Prior to the Fed decision, options traders were unusually bullish, per the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 3.00. Echoing this, a heavy accumulation of call open interest was docked at overhead strikes, which strengthened resistance in the near term.

It was also encouraging that near-term options contracts were attractively priced. This was according to JPM's Schaeffer's Volatility Index (SVI) of 19%, which was ranked in the low end of its annual range, hinting at extremely tame volatility expectations.

Following our recommendation, JPMorgan stock kept sinking -- closing lower in six of the next seven trading sessions and breaching the formerly supportive $106 level on June 22. We closed the first half of our position on Monday, June 25, leaving room for more upside. The next day, we closed the remaining half of the trade ahead of expiration, netting subscribers a total profit of 115% in less than two weeks. 

JPM Trade Postmortem


 

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