Trading an iron condor in JP Morgan (JPM)

JPMorgan Chase (NYSE:JPM) beat the Street on profits but missed revenue expectations and raised loan loss provisions in the consumer credit and mortgage areas of its balance sheet.

The stock is getting hit this morning, down about 3% at one point to $43.34 (as of 11:30 AM ET). For investors who believe the stock will continue to trade in a range between $41 and $46 for the next month, this February iron condor offers the opportunity to earn a 59% return on risk.

Iron Condor Trade Details:

JPM is currently trading at $43.95.

Below are the elements (one bull put spread, one bear call spread) for this iron condor. Please note that a brokerage platform that provides for four-legged spread trading (such as OptionsHouse ) will allow the simultaneous execution of all four legs. Additionally, if you so choose, you should then be able to set a limit order for the spread as a whole, thereby securing a better credit.

Iron Condor Part I: Bull Put Spread –

• Sell the February 41 put for $0.43 per contract
• Buy the February 40 put for $0.28 per contract
• Net credit of $0.15 per spread

Iron Condor Part II: Bear Call Spread –

• Sell the February 46 call for $0.63 per contract
• Buy the February 47 call for $0.41 per contract
• Net credit of $0.22 per spread

Overall credit for the spread: $0.37 (or $37)

Profit/Loss Details:

Maximum profit: $0.37 (the total premium collected) minus commissions.

Maximum risk: $0.63 (the difference between put or call strikes minus the premium collected). Return on risk is approximately 59% for this strategy.

Upper breakeven price: $46.37 (the strike of the sold call plus the total premium).

Lower breakeven price: $40.63 (the strike of the sold put minus the total premium).

For more on JPM:

World markets down as JP Morgan sales disappoint

Earnings Preview: Average Movements of Alcoa (AA), Intel (INTC), and Others

Low Volatility This Earnings Season

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