Wall Street megabank JPMorgan Chase (JPM) is up 33% over the past year. One trader is betting shares will cool off in the months ahead.
That’s based on the May $230 puts. With 70 days until expiration, 5,067 contracts traded compared to a prior open interest of 179, for a 28-fold rise in volume on the trade. The buyer of the puts paid $4.70 to make the bearish bet.
JPMorgan Chase shares recently traded for about $252, so shares would need to decline by $22, or about 9%, for the option to move in-the-money. Chase shares have recently started pulling back from a 52-week high of $280.25.
While the immediate trend in shares is lower, the 33% rally over the past year has been subject to other quick and sharp drops only to recover.
Operationally, the bank trades at 12 times earnings, which grew by 50% over the past year, suggesting a reasonable growth play here.
Action to take: Long-term investors may want to start a stake here, and consider adding to it on any further market weakness. The selloff looks short-term in nature.
At current prices, Chase pays a 2% dividend.
For traders, the May $230 puts could fare well if the market hits another air pocket in the coming weeks. Traders will want to take quick profits given rising market volatility, likely with a low-to-mid double-digit profit.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.