Trade of the Day: JPM 5k Dec Put Fly 18/23/28

JPMorgan Chase & Co. JPM – 5000 of the December 18 / 23 / 28 put flys were bought for $0.39. The maximum profit comes at 23.00 or 31.16% below the current price.

The chart above shows the break even points in white and max profit in green.


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 *Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow! No position at this time. 


Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

WFC trades 2X its daily average

Wells Fargo (WFC) traded 129,121 options today, 94,688 calls and 34,473 puts vs a daily average of 65,483 options, 37,088 calls and 28,395 puts.  Traders added 844k deltas in the calls and -168k deltas in the puts.

The print that caught my eye was a buyer of 10,000+ in the money March 32 calls this morning.  After these prints hit the tape the stock never looked back.  

There was also a diagonal short calendar spread where a trader sold 2500 of the March 35 calls @ $0.64 and bought 2500 of the Feb 34 calls @ $0.60.  This trade is profitable above $34.17 tomorrow and above $34.73 on expiration day.   This is a professional trade to be long deltas, long gamma, and short vol, for a credit of $0.04.  Here is the risk/reward for tomorrow:

As you can see in the chart below WFC is testing its highs from April of 2010.  This is very interesting when you compare it to the other big banks.  JPM, GS, C, MS, AIG, BAC, USB, PNC and of course XLF are all below their 2010 highs.   

Trade of the Day: JPM Jan 2012 40/30 ratio put spread

The Trade

Today, a trader bought 25,000 Jan 2012 40 puts @ 3.05 and sold 50,000 Jan 2012 30 puts @ 0.95 for a net debit of 2,875,000.

Risk/Reward

As you can see from the risk/reward graph above, the ratio put spread has limited risk and limited profit potential, with a bearish bias. The maximum risk for this spread would occur if the underlying stock goes to zero. The maximum risk would therefore be $52,875,000 in this situation. The max profit for the spread would occur at an underlying stock price of $30. At this price level, the short puts would expire worthless, and the long puts would be exercised. The max profit would therefore be $22,125,000. The break even price level in the underlying stock is 38.85, which is the higher strike price minus the debit. Ratio put spreads are a popular and cheaper way to hedge long stock vs buying a put vertical as long as the trader understands the increased risk/reward profile.

This bearish ratio put spread would be profitable if the underlying stock went below $38.85. JPM last dipped below the $39 level in November of 2009. It's interesting to note that JP Morgan hosts an analyst day on the 14th of February.