Friday, December 11, 2009

JPMorgan Chase & Co. (JPM) and (BAC) - Another Bank Butterfly

JPM is trading ~40.90 on the day the warrants were sold by the government. You can see the LIVEVOL™ Pro Summary below.

A look at the Company Tab shows that JPM averages ~115,000 options traded a day. Today over 255,000 have traded with 2 hours left in the day. You can see the snap below (click to enlarge).

The biggest trade of the day was 25,000 Jan 2011 50/60/70 butterflies. The day's biggest trades snap is below.

Someone paid 2.58 + 0.38 - 2*0.94 = 1.08 x 25,000 x 100 = $2.7 million dollar bet. The pay off of the butterfly is included below (click to enlarge).

Max. Gain: $22.3 million
Max. Loss: $2.7 million
BE (low): 51.08
BE (high) $68.92

Someone is willing to bet $2.7 million to win $22.3 million if JPM can get to $60.

For the few thousand of you loyal readers of this blog you may be experiencing some de ja vu. BAC ring a bell?

This is the second massive multi-million dollar bet on a big bank going up through the use of a butterfly.

For you new readers - see below.

------------- THIS IS FROM 11/20 (3 weeks ago) -------------

I saw a huge trade go up in BAC on the ticker (lower left hand side of the application). It was 100,000 Jan 2011 30 Calls. You can see the ticker snapshot below.

When I looked at the Company Tab I saw that it was in fact one leg of a butterfly. Specifically, the trade was:

Buy Jan 2011 20/30/40 Butterfly for 1.20 vs selling stock at 16.10 with 20 delta. The Company Tab snapshot is below as well as the Options Tab (click on images to enlarge).

So what does that mean? Here's the analysis on the day of expiration in January 2011:

Sell 1 million shares of stock @ 16.10
Buy 50,000 Jan 2011 20 Calls
Sell 100,000 Jan 2011 30 Calls
Buy 50,000 Jan 2011 40 Calls

Paid $6,000,000 for the options ($1.20 x 50,000 x 100)
Break Even Low: 10.10
Break Even High: 22.475
Break Even Highest: 35.025
Max Gain: $30,100,000
Max. Loss: Unlimited. At $40 loss is $29,900,000.
The bet loses an additional $1,000,000 for every dollar the stock goes above $40.

This is a bullish bet unless BAC completely collapses below $10 or rips over $35.

You can see the pay off diagram below (click on images to enlarge):

Legal Stuff:

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