JPMorgan Chase & Co (NYSE: JPM) shares are trading higher today after the company announced its Q3 07 earnings. After taking $1.3 billion in write-downs on leveraged loans and padding credit-loss provisions by about $2 billion, the company reported a net income of $3.37 billion for the quarter, up slightly from the year-ago period despite rocky market conditions. Earnings per share rose 5% from last year, coming in at $0.97 per share, beating analyst expectations by 7 cents. The company reported record earnings in asset management and Treasury and security services, up 51% and 41%, respectively. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on JPM.After hitting a one-year high of $53.25 in May, the stock fell to a 52-week low of $42.16 in August. JPM opened this morning at $47.04. So far today the stock has hit a low of $46.04 and a high of $47.12. As of 11:00, JPM is trading at $46.86, up $1.75 (3.9%). The chart for JPM looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 2 months as long as JPM is above $40 at December expiration. JPMorgan would have to fall by more than 14% before we would start to lose money. Learn more about this type of trade here.
JPM hasn't been below $40 at all in the past year and has shown support around $45 recently. This trade could be risky if the credit market problems persist, but even if that happens, this position could be protected by strong support around $43, where the stock bottomed twice over the past 3 months.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in JPM.
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Reader Comments (Page 1 of 1)
10-17-2007 @ 6:26PM
Sir Cool said...
Way to go, Jamie Dimon. I bet Citi shareholders are crying over the fact that he was shown the door at Citi nearly a decade ago. Of course, Dimon did not do all of this by himself. He had some help in a very talented and experienced Board of Directors. http://www.newsvisual.com/newsvisual/2007/10/ties-demonstrat.html