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September 20, 2012  Thu 9:27 AM CT

JPM: SEE CHART GET CHAIN FIND STRATEGIES
JP Morgan has been rebounding, but one trader sees little further upside.

A block of 1,800 October 44 calls were sold for $0.19, and about 40 minutes later a block of 9,000 was sold for the same price, according to optionMONSTER's systems. Open interest in the strike was 3,001 at the start of the day, so this is a new position.

JPM is down 1.5 percent to trade at $40.72. Shares were below $31 at the start of June but have rallied since. The bank traded above $42 last Friday, its highest level since the start of May.

Today's call selling is a bet that JPM won't be much above that price over the coming weeks. If they were sold naked the trade has an initial bearish bias, but it can profit with the stock anywhere below $44.19. If the options were sold against long shares as a covered call, then the trade is bullish up to the strike price but not beyond. (See our Education section)
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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