• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

There's a Worthy Options Play to Be Had With JP Morgan

I'm not willing to stick my neck out right now and take an equity stake.
By STEPHEN GUILFOYLE
Mar 11, 2020 | 10:54 AM EDT
Stocks quotes in this article: JPM, GS, C, MS, BAC, WFC, USB, PNC, CMA, KEY, RF

This morning, in Market Recon, we touched on "Complexity Theory" and the potential for unknown impact as systems either adapt or compete in order to gain or maintain access to resources. Of course two complex systems now under the microscope among others would be in finance and in healthcare. As one zooms out, we see that both are further intertwined with political, social, and transportation networks to varying degrees at local, regional, national and global levels.

On that note, several key banking executives will meet with President Trump this afternoon at the White House in the cabinet room. What will be discussed among many items will be thoughts or estimates on how long or how deep the spreading Covid-19 virus will impact the U.S. economy and subordinately... financial markets. There will also have to be discussion regarding protection or relief for U.S. consumers, as well as small- to medium-sized businesses.

On The Banks

Readers note that I have for weeks now considered the banks to be uninvestable. That thought came from the place of a collapsing Treasury yield curve. That's not to say that in the year 2020 that the banks, especially the larger, national banks do not have a bevy of ways to drive revenue, they do. It's that the markets still consider net interest margin when applying valuation metrics to the banking space, deserved or not. Getting out of the entire space was an investment decision. I still have bank accounts and I do not think the industry is in imminent danger. Let's not forget that at least on the trading side, the bigger banks can do very well in extremely volatile markets even if not appreciated when valued. My thought has always been that JP Morgan (JPM) is the "best in class" bank and when I do indeed reenter the arena, I would lead with that name.

Recent Timeline

We'll only go back a week. March 4th. That's the day that we learned via the Financial Times that large banks including Goldman Sachs (GS) , JP Morgan, Citigroup (C) , and Morgan Stanley (MS) had been testing disaster recovery sites in both the U.S. and the UK. The banks were working on continuity plans, seeking to spread out staffing as the coronavirus spread just in case an area was to be quarantined. This came one day after the FOMC had made an emergency 50 basis point reduction to the Fed Funds Rate target in between policy meetings, which is a rare event.

One day later JP Morgan CEO Jamie Dimon would end up in emergency heart surgery, and leave the firm temporarily in the control of co-Presidents Daniel Pinto and Gordon Smith. Dimon's surgery went well, by the way, and is reported to be recovering well.

By the following Monday, there would be an oil shock in addition to both a supply and a demand shock. All three of these "shocks" have started to add up to a financial shock. The banks, of course, have exposure to the U.S. shale oil patch, as many firms across that space rely upon access to liquid debt markets in order to sustain operations, and service that debt through the sale of their liquid commodity that now trades for a far lower price.

What banks are the most exposed to the oil patch? If you listened to Odeon Capital's Dick Bove this past Monday, it's not just the regionals. Bove claims that Bank of America (BAC) , Citigroup, JP Morgan, and Wells Fargo (WFC) could all have a problem. Among regionals, Bove named US Bancorp (USB) , PNC Financial (PNC) , Comerica (CMA) , KeyCorp (KEY) , and Regions Financial (RF) . That leads us to this afternoon's meeting in Washington. Gordon Smith will represent JP Morgan today.

JP Morgan

One quickly sees that by any normal standard that shares of JPM have become badly oversold by any technical measure including Relative Strength. The daily MACD looks like something out of a monster movie. A falling knife? Certainly. Does one try to catch a falling knife? One might try, but doing so intelligently is difficult.

While I am not willing to stick my neck out right now and take an equity stake, perhaps there is a worthy options play to be had. Am I willing to expose myself to equity risk at what appears to be a discount and get paid to take that risk. That is the question. Let's explore.

Ideas...

A trader could (in minimal lots):

- Sell (write) one JPM March 13th $90 put for a rough $1.45 if one was willing to own the shares at a net basis of $88.55 by this Friday.

- Sell (write) one JPM April 20th $85 put for roughly $4.75 if one could risk exposure for more than a month, get paid $475 up front to do so, and possibly end up owning 100 shares at a net basis of $80.25.

- Sit on one's hands. The only way to completely avoid risk, and there's nothing wrong with that. Know your risk tolerance.

(JP Morgan, Goldman Sachs and Citigroup are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.

TAGS: Investing | Markets | Options | Stocks | Technical Analysis | Trading | Banking | Financial Services | Stock of the Day

More from Investing

Clues to Where the Market Is Headed Next

Guy Ortmann
Apr 16, 2021 10:10 AM EDT

Let's look at the latest index charts and key market data.

Updating My 2021 Double Net Value Portfolio

Jonathan Heller
Apr 16, 2021 10:00 AM EDT

This tracking portfolio is comprised of companies that have three specific attributes.

Biogen's Charts Are Ready for an Upside Breakout

Bruce Kamich
Apr 16, 2021 9:55 AM EDT

Here's our first price objective.

NeoGenomics Is Ready to Turn Higher

Bruce Kamich
Apr 16, 2021 9:15 AM EDT

Here's our technical strategy.

My Favorite Day of the Month: Options Expiration Day

Bret Jensen
Apr 16, 2021 9:04 AM EDT

I have become a huge devotee of this simple option strategy. Here are two recent examples from this week.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:05 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How recency bias and the Pareto Principle impact y...
  • 02:42 PM EDT PAUL PRICE

    Wednesday on Real Money Pro

    Make this stock a 'part' of your portfolio.
  • 04:44 PM EDT PAUL PRICE

    Pretty Incredible + Hard to Believe

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login