Bank stocks are seeing some love this week. The Street’s affection gives us an excuse to scour the financial sector for bullish opportunities. I did just that, and JPMorgan (NYSE:JPM) looks primed for more upside. After providing a technical take, I’ll suggest a way to capitalize on its ascent using JPMorgan stock options.
The Financial Sector SPDR (NYSEARCA:XLF) has lagged for much of 2018. Its underperformance has given little reason to focus on bank stocks. With so much momentum elsewhere, financials have long sat in the “why bother?” bucket. But things are changing. The recovery in July ushered XLF back above its moving averages. And Monday’s surge drove the sector above a key horizontal resistance level that had previously been keeping a lid on it.
This undoubtedly bodes well for bank stocks like JPM.
Ever since breaking above its descending trendline in July, JPMorgan stock has been in bull mode. The price action this year has taken on the form of a cup-and-handle pattern just beneath all-time highs. At $116, JPM is sitting in the middle of its six-week handle. I think an upside breakout is looming — it’s only a matter of time.
In the short run, Monday’s rally saw great accumulation volume. The two-day pause that is now settling on the stock could be setting up the next advance.
JPMorgan Stock Option Trade
As is customary six weeks after an earnings release, implied volatility has dwindled to the lower end of its one-year range. The IV rank is 7%. With option premiums now shrunk, long calls aren’t a bad way to go.
Buy the Oct $115 calls for $3.40. The risk is limited to the initial investment and will be lost if JPM sits below $115 at expiration. To minimize the damage you could exit on a break of the $112.50 support level.
The max reward is unlimited, but consider taking profits or tightening stops on a move to $120.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
