Banking giant JPMorgan Chase (JPM) holds the honor of being not only the first Dow Jones Industrial Average component to enter the earnings confessional this earnings season, it is also the first major financial institution to report earnings.
In other words, JPMorgan’s quarterly earnings report could set a considerably important tone on Wall Street when it enters the earnings confessional ahead of the open on Tuesday next week.
For the record, Wall Street is expecting JPMorgan to post a profit of $1.44 per share, down two cents from $1.46 per share in the same quarter last year. Revenue is expected to slip 3.2% year-over-year to $24.53 billion. Analysts are expecting investment banking to be weak in the second-quarter, following on the heels of a strong first-quarter performance.
That said, some analysts are expecting more out of JPMorgan. Specifically, EarningsWhisper.com reports that the company’s second-quarter whisper number comes in at $1.50 per share, 6 cents better than the consensus.
This optimism holds true throughout the brokerage community, as Thomson/First Call data shows that 24 of the 31 analysts following JPM rate the shares a “buy” or better, versus only seven “holds” and no “sells.” Still, there is room for improvement, as the consensus 12-month price target of $71 represents a meager premium of only 6.25% to yesterday’s close.
Bullish sentiment is also pervasive among options traders. For instance, the July/August put/call open interest ratio for JPM stock arrives at low reading of 0.44, with calls more than doubling puts among near-term options. While this ratio rises slightly when we zero in on just the July series, a reading of 0.62 still reflects a respectable amount of optimism.
Click to Enlarge Overall, July implieds are pricing in a post-earnings move of about 3.45% for JPM stock. This places the upper bound at $68.31, while the lower bound lies at $63.69.
On the upside, JPM is facing short-term resistance in the $68 region, where its 10- and 20-day moving averages are forming a bearish cross.
On the downside, support lies at $66, which is home to JPM’s 50-day MA … but a breach of this trendline could send the stock sharply lower.
2 Trades for JPM Stock
Call Spread: Despite its recent slip, JPM stock has shown strong price action for the past several months. Baring any major hiccups, this trend should continue through next week’s earnings. As such, traders looking to jump on the bullish bandwagon might want to consider a July $66/$68 bull call spread.
At last check, this spread was offered at 73 cents, or $73 per pair of contracts. Breakeven lies at $67.73, while a maximum profit of $1.27, or $127 per pair of contracts, is possible if JPM stock closes at or above $68 when July options expire.
Puts Spread: On the other hand, there are some short-term risks facing JPM stock, not the least of which is a bearish cross of its 10- and 20-day trendlines. Additionally, if investment revenue is weaker than expected, or if this weakness spreads to other areas of business, JPM stock could be in for additional short-term losses.
With an eye toward potential techincal support at $65, traders might want to consider a July $65/$66 bear put spread. At last check, this spread was offered at a bargain price of just 8 cents, or $8 per pair of contracts, on the CBOE — your results will most likely vary. Breakeven lies at $65.92, while a maximum profit of 92 cents, or $92 per pair of contracts, is possible if JPM closes at or below $65 when July options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.