017. PIGGISH PLAY - Short JPMorgan Chase (JPM)
Updated
It is no secret that the Banking Sector is getting killed these days. Rightfully so.
With USD being printed at a pace that refutes the phrase "Money Doesn't Grow on Trees" and recent liquidity/lending regulations being imposed, it is difficult to see any sort of banking institution thriving at the present moment. Simply put, banks are now required to hold vast reserves of USD that is continuously depreciating in value, while also trying to conduct business in a (nearly) interest-free environment. To be honest, it is a pretty unfair situation and I offer my sympathies.
Yet, I will contribute towards shorting them into nothingness because that is what the market wants.
Onto the Pig Play:
The chart clearly demonstrates that JPM's historical quarterly earnings have little to no correlation with near-term price movement. This is good because it is the main reason why the premiums on near-term put options are priced at such a bargain. Bottom-line-performance and derivative pricing aside, this upcoming report is monumentally important for the entire broader economy, and all eyes will be fixated on the guidance offered on Tuesday morning. I'd even say that JPM's guidance is more meaningful than that of the FED because it is perceived as a more honest take on the economy.
To this end, JPM has reiterated bearish guidance during both of their prior 2020 quarterly conference calls.
I am speculating two things to occur on Tuesday; both of which serve as an impetus for this short setup:
1) JPM will miss their projected revs/earnings harder than they ever have for the reasoning outlined in the second paragraph
2) JPM will offer its most bearish guidance to a) justify its horrendous numbers, b) because the economy is not improving much, and c) because everyone expected the economy to be improved much
Technical impetus derives from the clearly bearish channel that emerged from the initial impulse wave down in February, the near-perfect bearish harmonic that will likely complete its "D" on Monday (if the market finishes its expected final leg up before the mighty selloff), and the decreasing highs of what seems to be a fading triple top on the daily timeframe.
Plan for Monday:
1) Accumulate puts toward the end of the morning session with a strike range between 96 - 99 and an expiration range of 10/23 - 10/30
2) For this play, I will have two separate positions for a more aggressive short term play (i.e. 96 Strike, 10/23) and a more conservative play (99, 10/30)
3) The majority of my position will be weighted towards the conservative play because of my general outlook that the market will crash and continue steeply downward for at least a few weeks thereafter
4) For those who want a decent hedge, buying 10/23 BlackRock calls might be a good idea. If JPM somehow beats strongly and issues bullish guidance (>1% chance, IMO), then having a similar, but better, company's calls that are set to report later in the week will inevitably catch a big bid.
Last thing - it might just be that Tuesday's guidance will be the straw that breaks the market camel's back and augments the crash setup. I suspect that the driving reason for the lack of market selloff (from institutions) so far is this scheduled report. In any case, if this does "cause" the broad selloff, then having a short position beforehand is like having your cake, ordering another cake, and eating both of them simultaneously.
Good luck and crush this play.
- Bank Piggy
JPM
WFC
BLK
SPX
KBE
With USD being printed at a pace that refutes the phrase "Money Doesn't Grow on Trees" and recent liquidity/lending regulations being imposed, it is difficult to see any sort of banking institution thriving at the present moment. Simply put, banks are now required to hold vast reserves of USD that is continuously depreciating in value, while also trying to conduct business in a (nearly) interest-free environment. To be honest, it is a pretty unfair situation and I offer my sympathies.
Yet, I will contribute towards shorting them into nothingness because that is what the market wants.
Onto the Pig Play:
The chart clearly demonstrates that JPM's historical quarterly earnings have little to no correlation with near-term price movement. This is good because it is the main reason why the premiums on near-term put options are priced at such a bargain. Bottom-line-performance and derivative pricing aside, this upcoming report is monumentally important for the entire broader economy, and all eyes will be fixated on the guidance offered on Tuesday morning. I'd even say that JPM's guidance is more meaningful than that of the FED because it is perceived as a more honest take on the economy.
To this end, JPM has reiterated bearish guidance during both of their prior 2020 quarterly conference calls.
I am speculating two things to occur on Tuesday; both of which serve as an impetus for this short setup:
1) JPM will miss their projected revs/earnings harder than they ever have for the reasoning outlined in the second paragraph
2) JPM will offer its most bearish guidance to a) justify its horrendous numbers, b) because the economy is not improving much, and c) because everyone expected the economy to be improved much
Technical impetus derives from the clearly bearish channel that emerged from the initial impulse wave down in February, the near-perfect bearish harmonic that will likely complete its "D" on Monday (if the market finishes its expected final leg up before the mighty selloff), and the decreasing highs of what seems to be a fading triple top on the daily timeframe.
Plan for Monday:
1) Accumulate puts toward the end of the morning session with a strike range between 96 - 99 and an expiration range of 10/23 - 10/30
2) For this play, I will have two separate positions for a more aggressive short term play (i.e. 96 Strike, 10/23) and a more conservative play (99, 10/30)
3) The majority of my position will be weighted towards the conservative play because of my general outlook that the market will crash and continue steeply downward for at least a few weeks thereafter
4) For those who want a decent hedge, buying 10/23 BlackRock calls might be a good idea. If JPM somehow beats strongly and issues bullish guidance (>1% chance, IMO), then having a similar, but better, company's calls that are set to report later in the week will inevitably catch a big bid.
Last thing - it might just be that Tuesday's guidance will be the straw that breaks the market camel's back and augments the crash setup. I suspect that the driving reason for the lack of market selloff (from institutions) so far is this scheduled report. In any case, if this does "cause" the broad selloff, then having a short position beforehand is like having your cake, ordering another cake, and eating both of them simultaneously.
Good luck and crush this play.
- Bank Piggy
JPMWFCBLKSPXKBETrade active
This is setting up pretty well so far...Futures continue downward tonight, could see some bags on the horizon.
Trade active
Alright, alright not a bad day for the bear clan.If you followed the pig play (conservative version), then the majority of your position should be about to pay you nicely tomorrow. That is, the 99 puts expiring this Friday.
Given how silly this market is, it does not shock me that we now face a very difficult trading decision with regards to the time left on our contracts and the very near-the-money close today. Honestly, its just never simple.
Yet, I have a plan that will make it as simple as possible. See below:
Note
Tough-Decision-Pig-Plan:I must assume the market is gapping down tomorrow. If it does not, then we're somewhat f**** and that'll be that until I come up with a solution. But its going to gap down, so moving on.
I see two possible scenarios for JPM (& broader market) tomorrow:
1) The gap down into tomorrow AM is enormous. Indices are massacres from the start of the opening bell without even attempting to close the enormous gap.
Solution A: Sell 1/2 puts on the open if JPM gaps to a price greater or equal to 97. Sell other 1/2 end of day or when you think LOD is.
Solution B: Sell 1/3 puts on the open if price opens below 97. Odds are that it just continues to the 90.55 target without much difficulty.
2) The market gaps but the relative damage varies across indices (like today):
Solution A: JPM opens 97 or higher, then sell 3/4 on the open. Let other 1/4 ride with profits in pockets.
Solution B: JPM opens lower than 97, then sell 1/2 and let other half ride down to 90.55
Note
Good luck and crush this trade for good tomorrow.Trade active
Unfortunately (and fortunately), the market is somewhere in between an enormous gap and a sizeable gap. The Nasdaq has proven that it can become manic at any time and force the other indices to stop whatever they are doing in order for it to complete its move. I really, really do not know whether the Nazzy folds or goes manic bull on FANG earnings hopes (seriously going to short those if the market stays afloat today).On top of this, JPM is trading pre-market at almost exactly 97.
Thus, this is impossible and I cannot help anyone with analysis at this point.
All I can say is that I am leaning towards conservatism and will almost invariably take 3/4rs at or within 5 mins of the open, rather than 1/2.
Do as you please and godspeed.
Trade closed: target reached
This shouldve been formally closed on Oct. 28th.Trade active
Opening this up again.Shorting this (long puts) on the open tomorrow.
Trade is to 92/share. Will be doing 101 strike for 1/8/21 most likely.
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