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Posts Tagged ‘JPM’

Earnings Season Survival Guide

Monday, July 12th, 2010
Buy, sell, hold?

Buy, sell, hold?

The days of reckoning are upon us!  So earnings season officially kicks off today with Alcoa’s (NYSE:AA) report.  CSX Corporation (NYSE:CSX) and Novellus Systems (NASDAQ:NVLS) are on today’s schedule as well.  As I write this at 6:00 a.m. Monday morning, futures in the S&P, DJX and Nasdaq are lower after a week’s worth of gains.

I wanted to take a couple of quick minutes today to highlight some things to remember and consider during earnings season as you make your decisions to buy, sell or hold.  These things are also important to remember if you plan on employing an options strategy.  Some high-profile companies that are scheduled to report this week are:

  • INTC, YUM and FAST on Tuesday
  • MAR on Wednesday
  • AMD, JPM and GOOG on Thursday
  • BAC, GCI, C and GE on Friday

There are many others reporting; the above issues are simply some of the more heavily followed.  If you are wondering when a company of interest reports earnings, check out the OptionsHouse Research tab to locate the next earnings date under the “Events Calendar.”  If none is posted, go to the company’s website, as some corporations may announce changes close to its report date or wait to disclose their exact earnings date.

Now that you know the relevant earnings date for your stocks, here are some factors to examine when deciding how to proceed:

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Google (NASDAQ:GOOG) pre-earnings options strategies

Monday, July 12th, 2010
Top image for Goog bulls/bears

Google Inc.

Google (NASDAQ:GOOG) has been all over the news lately, so let’s briefly hit the highlights. Last Wednesday, JP Morgan cut its earnings estimates for the second quarter and lowered its 12-month price target on the shares to $566 from $639 (though keeping a bullish rating of “overweight”). In a similar move on Thursday, an analyst with Oppenheimer trimmed his earnings outlook on the Internet giant and dropped his price target to $500 from $715 (keeping an “outperform” rating). Both “overweight” and “outperform” are essentially equal to a “buy” recommendation.

Then on Friday, the stock was boosted higher after Google renewed its license with China, allowing it to keep operating the google.cn website within the People’s Republic. This is currently the world’s largest market when it comes to online users, but there had been speculation for months that Google would choose to exit the country due to censorship laws. The stock moved higher on this news, outperforming the broad market on Friday.

Investors who believe Friday’s gains could carry through into next week could be considering bullish strategies such as the bull call spread we’ve outlined below. On the other side of the fence, contrarian investors could be looking into a variety of strategies that would benefit if GOOG heads lower. The examples below are hypothetical and should not be interpreted as buy/sell/hold recommendations. Always consider your risk/reward parameters before placing any new trades. Prices are given as of Friday afternoon, when GOOG was trading at $464.48, up $7.92 (1.7%) on the day.

To learn more about option trading strategies or our online option platform, visit our events page and check out schedule of free weekly webinars. Upcoming classes include tomorrow’s in-depth look at covered calls in the Two Traders, One Strategy series.

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From Trading Stocks to Trading Options

Thursday, June 17th, 2010

Balancing actAs everyone knows, most investors continue to use stocks (as opposed to options) for their primary investment tool.  Although options volume continues to grow each year, there are still a lot of people who do not understand what all the fuss is about.  Well hopefully, I can give you a quick rundown of the reasons investors should be versed in both stock and options strategies.  By “versed,” I mean educated in how options work and the potential benefits (and risks) they provide when used correctly.  I do not mean, “just try and figure it out by making real trades without knowing what you are doing.”

In order to move along, I will skip the super-basics:  What is a call? What is a put?  What is expiration? etc.  If you need to brush up on these mechanics go to The Options Industry Council. Here the option novice will find the information needed to understand this blog.

How Options Compare to Stocks:

1. The potential for increased return on investment by risking less capital.

Prices in examples given are as of Monday, June 14.

If you expect a stock to move within a defined time frame, you can buy in-the-money (ITM) options that would express this view but require less capital than buying the stock on margin.  For example, if you think that Citigroup (NYSE:C) is going to be trading as high as $5 by the middle of September, you have two choices: (more…)

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OptionsHouse Week in Review for the Financial Markets

Monday, April 12th, 2010

The S&P 500 started trading last Friday at the same level at which it closed on Monday of the same week. The Dow and NASDAQ were also flat on the week.

Even though Alcoa (AA) officially kicks off earnings season today, there were some earnings reports last week that began to pepper in a little excitement for some investors. For instance, Monsanto (MON) disappointed many investors with reports of lackluster earnings of only $1.70 per share. Reports indicated the agriculture giant missed sales and revenue forecasts and experienced marked weakness in their Roundup brand and other glyphosate herbicide products.

They did perform well in their seed division, but missed on overall revenue expectations and confirmed EPS guidance at the low end of its previously guided range of $3.10 to $3.30. MON also retracted its long-standing goal of doubling 2007 gross profit by 2012.

Surprisingly, with all this negativity, the stock actually moved higher after the report.

How and why does this happen?

One would think if the company is not making as much as analysts expected, the stock should be selling off, right? Not always. Remember, everyone has unique expectations of a stock’s earnings performance. (more…)

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What’s the forecast for First Solar (FSLR)?

Tuesday, March 9th, 2010

Midday Tuesday, JPMorgan (NYSE: JPM) turned a bit cloudy on solar-power stocks, saying the business could face oversupply risk in the second half of the year and increased competition from wind-power companies. JP Morgan also downgraded two of the major names in the sector, lowering its rating on Evergreen Solar (NASDAQ: ESLR) to neutral from overweight and cutting First Solar (NASDAQ: FSLR) to underweight from neutral. FSLR closed at $108.64 on Monday but fell roughly 3% in Tuesday’s action as a result of this downgrade.

While brokerage houses are limited to ratings that effectively correspond to “buy,” “hold,” or “sell,” options players have a broad arsenal of strategies that can be customized for a variety of purposes. There are strategies that can work for traders whether they expect the underlying stock to rally, decline, or even if they think it is likely to do nothing at all. Below are two ways – one bearish, one bullish – that can be used by investors who follow First Solar shares. These are not buy-sell-hold recommendations, just potential strategies for self-directed traders.

Bearish Option Strategy:  Broken-Wing Put Butterfly

Traders who agree with JP Morgan’s cautious outlook could consider a broken wing put butterfly, which consists of two spread trades executed simultaneously. First is a long put spread, as the June 100/115 can be bought for a debit of $8.70 by selling the 100 put and buying the 115 put. Second is a short put spread, selling the June 100 put and buying the June 95 put for a net credit of $2.00. The overall debit for the four-legged trade is $6.70, which is also the maximum potential loss for the strategy. The maximum gain is $8.30, which is achieved if JPM closes right at 100 at June expiration. The butterfly will be profitable at expiration if JPM is trading anywhere below $108.30.  Anywhere below 95, a modest profit of $3.30 is earned.

Bullish Option Strategy:  Bull Call Spread

If you remain a fan of FSLR despite today’s remarks from JPM, consider a bullish call spread.  The June 115/120 spread can be traded by buying the 115 strike, selling the 120 strike for an overall net debit of approximately $1.60. Call spread buyers have risk to lose 100% of their initial investment, but can net a maximum profit equal to the difference between strike prices minus the premium paid (for this example, maximum profit is $3.40, making the return on risk 212%). This trade will be profitable at expiration if the stock is trading above $116.60.

Do you have a sunny outlook on First Solar or do JP Morgan’s concerns make sense?

You decide!

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Trading Ideas in JPMorgan Chase (JPM), Cramer’s Big Bank Pick

Wednesday, March 3rd, 2010

Jim Cramer praised JPMorgan Chase (JPM) Chief Executive Jamie Dimon, calling him “The best banker in America,” during the February 24th edition of CNBC’s “Mad Money.” Cramer was also positive on the bank’s balance sheet as well as its overall growth and dividend potential. In short, Cramer is bullish on JPM shares and thinks the stock could rally as high as $50 if the federal government eases up on proposed banking regulations.

Thinking Beyond Buy or Sell

JPM shares were trading at $40.85 at the time of Cramer’s broadcast. When Cramer and other well-known market pundits broadcast their opinions on stocks, investors who prefer to trade options have many different strategies at their disposal, as opposed to just buying or selling the shares outright. Here’s a look at two of the ways options investors might follow Cramer’s opinion (or trade against it!). These are not buy-sell-hold recommendations – just potential strategies that fall into the bullish or bearish camps.

Traders who agree with Cramer and expect upside (or at least limited downside) in JPM shares could consider buying an intermediate-term call butterfly. The investor could buy the June 30/45 call spreads and sell the June 45/49 call spreads, paying an overall net debit of $9.80 per butterfly. Maximum risk for this strategy is 100% of the premium paid (plus commissions). Maximum potential profit is $5.20 per butterfly, minus commissions. This June call butterfly spread will be profitable if JPM is trading higher than $39.80 when the June options expire.

Investors who disagree with Cramer and expect downside in JPM could consider buying bear put spreads. For example, the April 50/40 put spread could be purchased for a net cost of $8.00, which is also the maximum potential risk (plus commissions). The maximum potential profit is $2.00 minus commissions (the difference in strike prices minus the premium paid). This bear put spread will be profitable If JPM shares are trading lower than $42 at April expiration.

Options provide traders with a variety of options, and this call butterfly spread and bear put spread idea are just two of the many strategies you might use to reflect your investment opinion, whether you agree or disagree with Cramer or any other market pundit.

Your Take

Cramer is bullish on JPM. Do you agree with his assertion that Dimon is the “best banker in America” and investors are smart to expect upside in JPM? Or, do you think your money is better spent hedging against expected downside? The comments are yours to add your voice to the conversation.

Image of Jamie Dimon from the cover of the April 3, 2006 issue of Fortune.

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August Roundup: A Look at Some Specific Stocks Compared with Major Market Averages

Saturday, August 29th, 2009

With August almost in the books I believe it is worthwhile to look at some specific sectors and stocks relative to the major market averages.

For a reference point the SPX index started the year at a level of 903.25.  So with today’s close at 1028.93 the overall market is up almost 14%.  It is more impressive to remember that on March 9th the index closed at 676.53, after hitting a intra-day low of 666.79 (up 54% from intra-day low)

On the sector front the best performing sector has been Info Tech up almost 40% YTD.

Within the highest weighted Tech companies Apple (AAPL) stands out,  up almost 100% .  Google (GOOG) a more pedestrian 51%.  Microsoft and Intel 27% and 38% respectively.

Also a leading sector the Materials sector has enjoyed just over a 30% YTD return

Freeport McMoran (FCX) a copper and gold company stands 167% higher than the start of the year!

Heavy weight Monsanto (MON) is only better by 18%

Consumer Discretionary names as a sector are up by 23.6% from the start of the year.  This sector as it is driven by consumers has definite winners and losers.  McDonald’s Corporation (MCD) which was a relative bastion of safety in the last quarter of 2008 is actually down9.8% on the year.  This is likely because investors have rotated out of safety into higher beta higher risk names.

Ford (F) is back from the dead, taking the pole position of the top 15 members in this sector up 237%.  Remember this company did not take government money as Chrysler and General Motors (MTLQQ.PK) did.  Amazon (AMZN), up 61%, Target  (TGT) up 37% and Kohls (KSS) up 45%, are three retailers that compare favorably.

The consumer staples sector is higher by only 3% as investors have rotated out of traditional safety stocks.  Proctor Gamble (PG) is down 13% Wal Mart (WMT) is down almost 9% and Coca-Cola (KO) is up only 8%.

Lastly Financials are up 17% for the year.  This sector has had the biggest thrill ride at the lows it was down over 50%, from the lows it is up 143%!

Goldman Sachs (GS) is up 94% to lead the charge

American Experess (AXP) is higher by 84% as the consumer is still using the little green cards.

In the Banking subsector Wells Fargo (WFC) is still down on the year losing 7.3%

Citigroup (C) still has issues down 22%

Bank of America (BAC)  has recovered 27%

And J.P. Morgan Chase (JPM) is up a respectable 36% which is great by most measures, unfortunately they measure vs. Goldman Sachs typically.  So Jamie Dimon is probably disappointed.

The next move in the overall market is anyone’s guess.  The 10 day historical vol is calculated today at 10.79%.  The VIX is stubbornly staying near the 25% level, possibly indicating we are entering a more volatile trading environment into the last 4 months of the year.  The more dispersion between sectors, and between stocks in performance the more “normal” trading will be.

Remember the stock market is the ultimate forward looking indicator of future cash flows and expected growth for the economy and individual companies.

There is no better indicator out there.

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