Opening Trade
10-13-2022
expiration date: January 17, 2025
Number of Contracts = 1 contract
JP Morgan Chase is now trading at a price earnings multiple of only 8X, lower than the worst days of the pandemic low and the 2009 crash low. In order words (JPM) is the cheapest that it has been this century.
The banking sector has been beaten like the proverbial red-headed stepchild this year. However, it should be at the core of any long-term LEAPS portfolio.
The best time to pick up this position will be during a market meltdown day when the (SPX) is trading under $3,500 and the Volatility Index is over $34.
If you are looking for a lottery ticket, then here is a lottery ticket.
While the chance of winning a real lottery is something like a million to one, this one is more like 2:1 in your favor. And the payoff is 12:1. That is the probability that JP Morgan shares will double over the next two years and four months.
(JPM) is the class act in the global banking sector, and CEO Jamie Diamond is the best CEO in the country. Not only that, with rocketing interest rates, we are just entering the golden age of the banking sector.
I believe that massive government borrowing and spending will drive US interest rates up through the roof. Banks love high interest rates because they vastly improve profit margins.
And here is the sweet spot. Fears of a recession increasing loan default rates have knocked $66, or 39% off the $170 high in (JPM) shares this year. We are now only $20 above the 2020 pandemic low. When recession fears fade in 2023, interest rates will still remain historically high and (JPM) profits and share price should rocket.
To learn more about the company, please visit their website at https://www.jpmorganchase.com.
I am therefore buying the JP Morgan (JPM) January 2025 $175-$180 out-of-the-money vertical Bull Call spread LEAPS at $0.50 or best.
Don’t pay more than $1.00 or you’ll be chasing on a risk/reward basis.
January 2025 is the longest expiration currently listed. Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.
Let’s say the JP Morgan (JPM) January 2025 $175-$180 out-of-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $0.50-$1.50, which is typical. Enter an order for one contract at $0.50, another for $0.60, another for $0.70, and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.
Notice that the day-to-day volatility of LEAPS prices is miniscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.
Look at the math below and you will see that a 73% rise in (JPM) shares will generate a 900% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 12:1 across the $175-$180 space.
(NVDA) doesn’t even have to get to a new all-time high to make the max profit. It only has to get back to $180, $10 higher than it traded last March.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.
This is a bet that JP Morgan will not fall below $180 by the January 17, 2025 options expiration in 2 years and 3 months.
Here are the specific trades you need to execute this position:
Buy 1 January 2025 (JPM) $175 calls at………….………$3.00
Sell short 1 January 2025 (JPM) $180 calls at…………$2.50
Net Cost:………………………….………..………......….….....$0.50
Potential Profit: $5.00 - $0.50 = $4.50
(1 X 100 X $4.50) = $450 or 900% in 2 years and 3 months
If you are uncertain on how to execute an options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
