Why puts are surging in JP Morgan
Chris McKhann | firstname.lastname@example.org
JPM trades at $35.29, down 4.05 percent this afternoon. Yesterday's close was its highest since May 11, when shares gapped down from above $40. Shares had traded below $31 at the start of the month, hitting new lows for 2012.
There is plenty of options trading in JPM, which has already seen some 129,000 change hands, compared with its daily average of about 108,000. The biggest single trade in the name so far is a put ratio spread.
A trader bought 3,000 September 27 puts for $0.51 while selling 6,000 September 23 puts for the bid price of $0.25, according to optionMONSTER's systems. The volume at each strike was above open interest, so this is a new put vertical trade.
This ratio spread is designed to take a maximum profit if JPM falls to $23 around expiration. Given the prices involved, however, the trade risks only $0.01 if the stock remains above $27. On the downside, the trader is willing to buy shares if they fall below the lower strike. (See our Education section)