Complex Spread Trading in JPMorgan Chase (JPM) and Wells Fargo (WFC)

JP Morgan Chase (NYSE: JPM) got its earnings out of the way on January 15th (besting analysts’ expectations by 13 cents per share), but option players are still showing an interest in the shares. On Thursday, with the stock inching up 15 cents to $39.48, a large call condor hit the tape as investors wagered on an intermediate-term range in the shares.

All of the excitement transpired around 11:15 AM Eastern Time Thursday morning, as blocks of 25,000 contracts traded on the following out-of-the-money call strikes: June 40, June 48, June 50, June 60. Respectively speaking, the blocks traded at $2.90 (per contract), $0.61, $0.39, and $0.09. All of these options headed into Thursday’s trading day with far less than 25,000 contracts in open interest, so it is safe to assume this volume traded to open.

Essentially, the trader bought the 40/48 call spread for $2.29 and sold the 50/60 spread for $0.30, for an overall net debit of $1.99. This qualifies the strategy as a long condor spread. Typically, the stock is trading between the middle (48 and 50) strikes, but JPM is actually below all of these strikes in this scenario.

There are two breakevens for this long call condor: $41.99 and $58.01, or the lower-strike long call plus the debit paid and the higher-strike long call minus the debit paid. Between these levels, the condor will make money. The condor will hit its maximum gain ($6.01, or the difference between the two lower-strike calls minus the premium paid) if JPM is trading between the 48 and 50 levels come June expiration. So in essence, the traders are hoping JPM rallies 21% between now and June 18th, but does not rally any more than 26%. It is betting on a tight range, but the maximum the trader can lose is the premium paid, or $1.99. The potential return on risk is about 300%.

Elsewhere, in the financial sector, Wells Fargo (NYSE:WFC) saw a complex put spread trading in its April series. Around 2:30 PM Eastern, a block of 7,500 contracts traded on the April 22 and 23 puts. The 22 strike traded for 34 cents per contract, the bid price, while the 23 strike hit the tape at 44 cents, which was also the bid price at the time. At the same time, a block of 15,000 contracts went off at $1.04 at the April 26 put, trading above the ask price. It is possible that the April 22 and 23 puts were sold for a net credit of $0.78, and then the April 26 puts were purchased for $1.04, resulting in an overall net debit of 26 cents.

WFC shares finished up 25 cents on Thursday at $28.45, closing higher in a down market.

More on JPM:

JP Morgan Chase Names Steve Black Company Vice Chairman; Shares Up

Trading an iron condor in JP Morgan (JPM)

More on WFC:

Wells Fargo (NYSE: WFC) options active following proposed asset tax

Call Sellers Hitch On to Wells Fargo’s (WFC) Wagon