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Contrarian Options Strategies Crop Up In Some Financials Ahead Of Holiday

Today’s tickers: JPM, BCS, ARCC & YGE

Commentary to resume Monday, November 28th 

JPM - JPMorgan Chase & Co. – JPMorgan blends in with the sea of red today, its shares trading lower by 3.2% to stand at $28.48, as of 11:55 AM in New York. But, fresh prints in weekly options covering the banking institution reveal some strategists are initiating low-probability bullish positions on the stock should shares rebound after the holiday. Call options expiring on Friday saw an influx of buyers paying as little as a penny per contract to prepare for a near-term rebound. Trading traffic in the front-week calls is heaviest at the Nov. ’25 $29 strike where more than 7,600 contracts changed hands against previously existing open interest of 340 positions. It looks like most of these calls were purchased for an average premium of $0.30 apiece. Investors long the calls may profit at expiration this week in the event that JPM’s shares rally 2.9% to exceed the average breakeven point at $29.30. Traders also purchased another 1,000 calls at each of the Nov. $30 and $31 strikes for average premiums of $0.06 and $0.01 each, respectively. Meanwhile, like-minded optimism appears to have spread out to contracts that expire one week from this Friday. Investors itching for a rebound picked up around 1,500 in-the-money calls at the Dec. ’02 $28 strike for an average premium of $1.28 a-pop. Call buyers make money if shares in JPMorgan Chase & Co. top the average breakeven price of $29.28 at expiration on December 2. Options implied volatility on the stock rose 13.8% to 53.5% in early-afternoon trade.

BCS - Barclays PLC – A burst of call activity on Barclays pushed the stock onto our ‘most active by options volume’ market scanner just before midday in New York. The seemingly bullish call buying on Barclays contrasts with the 3.0% move lower in the price of its shares to $9.32 this afternoon. More than 30,000 call options changed hands at the Dec. $12 strike against open interest of 3,863 contracts. It appears one investor purchased most of the calls, outright, at a premium of $0.15 apiece. The trader stands ready to profit at expiration in the event that the stock jumps 30.4% to surpass the effective breakeven price of $12.15. Shares in Barclays had topped $12.15 as recently as November 4.

ARCC - Ares Capital Corp. – Put activity on Ares Capital Corp. this morning suggests at least one strategist is positioning for double-digit declines in the price of the underlying through December expiration. Shares in ARCC are currently down 1.8% to stand at $14.50 as of 12:10 PM on the East Coast. The stock appeared on our ‘hot by options volume’ market scanner after some 1,800 puts changed hands at the Dec. $13 strike against open interest of 236 contracts. It looks like the majority of the puts were purchased for an average premium of $0.15 apiece. Buyers of the put options may profit at expiration next month if shares in Ares plunge 11.4% from the current price of $14.50 to breach the effective breakeven point on the downside at $12.85. Shares in ARCC dipped to a near six-month low of $12.76 as recently as October 4.

YGE - Yingli Green Energy Holding Company, Ltd. – Shares in the maker of photovoltaic modules are up 9.6% this morning at $3.88 on record quarterly shipments, despite lower revenues and a third-quarter loss announced by the company ahead of the opening bell this morning. It looks like at least one options player is positioning for shares in Yingli Green Energy to continue to rally during the next few weeks. Traders appear to have purchased some 3,250 calls at the Dec. $4.0 strike for an average premium of $0.25 each. Profits may be available to call buyers in the event that shares in YGE rally another 9.5% over the current price of $3.88 to surpass the effective breakeven point on the upside at $4.25 at expiration. Nearly 4,000 call options changed hands at the Dec. $4.0 strike by 11:50 AM ET, against previously existing open interest of 1,283 contracts.

 

Caitlin Duffy
Equity Options Analyst

 


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