The heart of earnings season is fast approaching, and bank stocks are leading the charge. Heavy hitters from JPMorgan Chase & Co. (NYSE:JPM) to Goldman Sachs Group Inc (NYSE:GS) and Bank of America Corp (NYSE:BAC) are tidying up the books and prepping them for perusal by the denizens of Wall Street.
Said citizens are a fickle bunch, demanding profit growth and glowing commentary about the year ahead. If companies deliver the goods, their stock prices are rewarded with overnight gains. If they falter, their stock prices suffer.
Let’s zero in on JPM stock, as JPMorgan is slated to report its latest numbers Friday before market open.
For starters, if you’re expecting fireworks from financial stocks, prepare to be disappointed. Bank stocks are notorious for go-nowhere, do-nothing-type earnings reactions. And that means any and all earnings-based trades sit squarely in the low-risk, low-reward camp.
JPMorgan Chase is flying high into earnings; unprecedented heights, in fact. As with any equity perched at all-time highs, JPM stock is boasting uptrends across all the time frames with nary a whisper of overhead resistance.
Of course, JPMorgan’s rocket ship rise isn’t exactly unique. The entire financial sector has been on fire following last year’s election. But, we can certainly consider the banking behemoth one of the best of breed. Its performance has bested its peers, many of which have yet to notch new all-time highs.
The options market has been relatively quiet ahead of Friday’s main event. Implied volatility remains subdued, which means the fear of JPM delivering dreadful earnings is virtually nill.
How to Trade JPM Stock on Earnings
Rather than going with a low-odds contrarian bet, consider joining buyers with a bullish options play. Selling a Feb bull put spread should do the trick.
Sell the Feb $82.50/$77.50 put vertical for 69 cents credit. The trade consists of selling to open the Feb $82.50 put while buying to open the Feb $77.50 put. The max gain is limited to the initial 69 cents and will be captured if JPM stock sits above $82.50 at expiration.
Right now the options market is pricing in your probability of profit at 75%.
The max loss is limited to the distance between strikes minus the net credit, or $4.31, and will be lost if JPMorgan sits below $77.50 at expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.