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JPMorgan Sees a Glut of Post-Earnings Put Activity

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However, some of Friday's JPM put volume was sold to open.

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JPMorgan Chase & Co. (NYSE:JPM) saw a surge in put volume on Friday, following the banking giant's first-quarter earnings report. Although the firm topped analysts' bottom-line estimates, revenue fell short of expectations. As a result, roughly 143,000 puts crossed the tape during the course of the session, which was more than triple the security's average single-session put volume. By comparison, just 106,000 calls were exchanged.

However, not all of this put action was of the bearish variety. Garnering notable attention was the May 48 strike, where nearly 27,000 puts changed hands -- a large portion of which traded in one block at the bid price of $0.65 each -- pointing to seller-driven activity. Open interest at this strike soared by 24,150 contracts over the weekend, signaling the initiation of new positions. Essentially, the speculator is counting on JPMorgan Chase & Co., currently trading at $49.12, to remain perched above $48 through the close on May 17, when these back-month options expire. This would render the options worthless, and allow him to pocket the initial premium received for his put sale.

Widening the sentiment scope shows traders have been employing JPM puts in a more traditional sense lately. The equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.77 is just 6 percentage points shy of a yearly peak, confirming speculators have been snapping up puts relative to calls at a near annual-high clip.

Likewise, Schaeffer's put/call open interest ratio (SOIR) for JPM is docked at 1.20, with puts outstripping calls among options slated to expire in the next three months. This ratio ranks higher than 85% of comparable 52-week readings, signaling near-term traders have rarely been more put-heavy toward the stock during the past year.

Technically speaking, JPMorgan Chase & Co is up about 11% year-to-date, and has recovered more than 26% since tagging a mid-November low of $38.83. What's more, the stock continues to trade well above its 10-month moving average, which has acted as a floor since September.

As of 11:11 a.m. EDT, JPM is up 0.2% to trade at $49.12, after receiving upward price-target adjustments at Stern Agee and RBC in pre-market activity.

This article by Terri Stridsberg was originally published on Schaeffer's Investment Research.

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