Trade Alert – (JPM) June 21, 2012

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

Trade Alert – (JPM)

Sell the August, 2012 (JPM) $25-$28 call spread at $2.95 or best

Closing Trade

6-21-2012

expiration date: August 17, 2012

Portfolio weighting: 25% = 100 contracts

This was a bet that the JP Morgan shares (JPM) will not trade under $27.65 by the August 17 expiration, or down $6.05.

I still love (JPM) as a company. I still think that the shares are going to the mid $40’s. But we have squeezed about as much juice as we can from the August, 2012 $25-$28 call spread. We have really hit diminishing returns on this position. By coming out here, we can harvest $2.95 of the $3.00 maximum possible value without having to wait two more months to capture the balance. It doesn’t make sense from a risk/reward basis to tie up 25% of our capital to boost our performance by another 50 basis points. By selling here I get to duck the Moody’s downgrades of US banks which are expected to be imminent.

On top of that, we have had a great 100 point rally in the (SPX). Given the Federal Reserve’s disappointing decision yesterday, it’s time to cut back “RISK ON” positions generally and move to the sidelines. That will give me additional dry powder to take advantage of the bargains during the next sell off. I might even put this exact same trade back on if JP Morgan shares give up the $5 they just gained.

Only execute with a limit day order for the spread in the middle market. If your order doesn’t get done, then increase your limit bid in 5 cent increments until you get filled. Prices are all over the map today. Don’t enter market orders on pain of death. You’ll lose your whole profit.

Sell the August, 2012 (JPM) $25 calls at………………$11.70
Buy to cover the August, 2012 (JPM) $28 calls at…….$8.75

Net Proceeds:……………………………………………$2.95

Expiration calculation

Profit calculation………………………………………..$2.95
Cost:………………………………………………………$2.65
Profit:…………………………………………………….$0.30

(100 X 100 X $0.30) = $3,000 = $3,000, or 3.00% for the model $100,000 portfolio.

Thanks Jamie!

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