Why Call Sellers Are Targeting JP Morgan

| About: JPMorgan Chase (JPM)

By Chris McKhann

As JP Morgan (NYSE:JPM) bounces off two-year lows, option traders are selling the upside to capture the volatility premium. JPM trades at $34.60, up 3.47 percent on the day. The stock finished yesterday just a couple of ticks above the close of Aug. 22, which was its lowest in more than two years. Despite the bounce, shares are still down 9 percent in the last four sessions and have lost $13 in the last five months.

Topping today's option volume is action in the November 40 calls, as 5,000 were for $0.57. The position is betting that JPM will stay below $40 by that expiration. It is also a bet that the actual volatility of JPM shares will be less than the implied volatility of those calls, which is 37 percent. Although the 30-day historical volatility is greater at 57 percent, it was below that 37 level for at least the previous 11 months.