How to trade JP Morgan ahead of its Q4 release

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How to trade JP Morgan ahead of its Q4 release

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JP Morgan is one of the first major US banks to report Q4 earnings on Wednesday. Saxo Bank's Head of Equity Strategy, Peter Garnry is not expecting any big surprises and analysts are expecting an EPS figure of $1.32, slightly down from last year. He suggests selling a 'strangle' as a viable trading strategy.

Peter is assuming that JPMorgan's stock price will stay within +/-6% within the next month. As a result, an investor that wants to play the volatility on JPMorgan's earnings should be selling a February call and put option (expiry on Feb 20). The call option with a strike at $62.50 sells for $0.45 and the put option with a strike at $55 sells for $0.65, which together adds up to $1.10 for selling this strangle or 1.87% of the price on the underlying (yesterday's close was $58.83).