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Trade Update JPM

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TradeUpdate,August17th,2012:

SinceIdidnotexpectthebroadermarkettomatchitshighfortheyear,myJPMshortcallspreadtradefromearlyJulyhasendedupasaloseronexpirytoday?

Themainissueforthepastweekwasthatthestockhasbeengenerallytradingabove$37,makingithardformetoexitthetradewithoutclosetoamaxloss?

Unfortunately,thestocklookslikeitsgoingtopinmylongstrikeof$37today?

Iwanttocloseoutofthispositionthismorningtosalvagethelittletimevaluestillremaining:

ACTION:JPM($36。

87)BoughttheAugust35/37callspreadfor$1。

85

Bought1August35Callat1。

90

Sold1August37Callat0。

05

OriginalTrade,July6th,2012:

HereisaquickpreviewofwhatIwillbediscussingonOptionsActiontonightonCNBCat5pmeastern:

JPMhasbeenafocusstockforDanandmeeversincetheWhalenewsafewmonthsago?

AsDanlaidoutinhistradeideabackonMay11th:

TheprogressionforGSinApril2010:

-Headlinebrokeaboutthecharges。

-Lambastedinthemediafromallsides。

-LostitsstandingasthepremierU。

S。

financialinstitution。

-Stockneverregainedpreviousheights。

OURVIEW:WethinkJPMwillfollowasimilarpattern?

Throwoutallthefancy?

valuation?

metricsthatbullswillexplainaway,whyitisCheap,etc,thisisinasentimenttrapandwearelikelytoseeabitmorefireworksbeforethissettlesout……Wewanttopresstheshort…

Verylittlehaschangedinthatprogressionofeventstimelinetochangeourview?

WethinkJPMisintheprocessoflosingitsplaceatthepedestalofAmericanfinance?

Regulatorswillnolongertaketheirwordforit?

JamieDimonwontgetthefirstcallfromTimGeithnerwhenacrisiserupts?

AndJPMwontgetfavorableregulatorytreatmentgoingforward。

HereiswhatIsaidinaCotDpostonJune12thcomparingthatJPMpriceactiontoGSpriceactionin2010:

Tome,it’sobviousthatinaworldwherethe10yearTreasuryyieldis1。

6%,banksarestrugglingtogeneratemeaningfulreturns,andthey’veresortedtotradinggroupslikeJPM’sCIOgrouptomaintaintheirearningspower?

It’swhythefinancialssectorhasnotbeenabletoholdontoanyrallysinceMay2009(infact,thebankstradelowerthanwheretheydid3yearsago)?

Astuteinvestorsseeanyearningspopasephemeral,withlittlechangeintheunderlyingstructuralissues。

Overthenextyear,IwilllooktoJPMasagoodshortingvehicleonanymarketpops,asIexpecttheWhaleordealtohavethesamelong-termimpact?

Nomatterwhatthebank’sexecutivestellme…

Again,nothinghasoccurredtochangemyopinion?

Ifanything,IvebecomemoreconvictedonthisviewgiventheBarclaysLIBORscandalandrecentcentralbankactions。

JPMreportsearningsonJuly13th?

Itsimplyinga4。

5%movevs。

anaveragemoveof2。

1%overthelast8quarters?

Analystsarestillexpectingearningsof$0。

79evenwiththeWhalelosses?

IthinktheactualWhalelossnumberisnotthatrelevant?

Itsthefutureoutlookthatsthecoreofmybearishthesis?

Analystshave25%earningsgrowthmodeledinfor2013,whichseemsskyhightome。

Finally,Europeanstresshasnotleftthismarket?

TheEuromade2yearlowstoday,andEuropeanbanksaredownalmost10%fromtheirhighsjustearlierthisweek?

Givenmyconcernsoverglobalgrowth,coupledwithEuropeanfinancialweakness,JPMremainsavehicleofchoiceforme。

Withvolatilityelevatedaheadofearnings,andgivenmyexistinglongputpositionsinJPM,Idontwanttobuymorepremium?

Rather,IamgoingtoaddtomyshortpositionbysellinganAugustcallspread:

TRADE:JPM($34。

00)SoldtheAugust35/37callspreadfor$0。

65

Sold1August35Callat1。

15

Bought1August37Callat。

50

Break-EvenonAugustExpiration:

Profitsbetween35。

65and35,makeupto。

65,maxgain35orbelowof0。

65

Lossesofupto1。

35between35。

65and37,maxlossof1。

35at37orabove

TradeRationale:

IdontthinkearningsisahugeeventforJPM,soIwouldrathersellpremiumintotheevent,especiallygivenmyexistinglongpremiumtrades?

Rather,IthinkthisisasecularthemeofweaknessthatwillcontinueforJPM?


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