Traders are not expecting any surprises in actual Q2 earnings. This is due to all the news about the busted trade that could cost JPM between $4 and $8 billion dollars. JPM would have somehow provided some warning on core earnings during this crisis, but they didn’t.
But I believe JPM will announce better-than-expected core earnings and a forecast that mirrors weakening economic data for theU.S.and the world. In other words, a muddle.
But the Street isn’t pricing JPM’s options as if the announcement will be a muddle. Premiums on weekly options are through the roof. With the stock trading north of $34, there are two ways to trade JPM by selling weekly put options.
Trade #1: Sell a JPM July Week 2 $33 put for $0.51. By selling a $33 put, which would be in the money if the stock declines more than 10%, you get an annualized return of more than 16% on the position. And if you sell $33 puts, and they expire worthless, you have a 101% annualized gain.
Trade #2: Sell a JPM July Week 2 $32 put for $0.29. If they expire worthless, you have a 50% annualized gain.