Check out the daily stock chart in JP Morgan Chase (Ticker: JPM):
Friday’s candle is a bearish engulfing candle — it is red and completely engulfs Thursday’s green candle.
I also highlighted the gap created on August 6, when JPM opened up $2.
The Japanese candle system calls a gap a window, and stocks tend to revert back to and close the window (gap).
I think JPM could trade down to $153 after closing at $157.36 on Friday.
Looking at the options, I like the upcoming week’s expiration cycle. It is the September monthly expiration, so the markets are narrower and there is good volume trading, which helps my entry price.
If JPM opens and trades lower, I will buy the Sept. 17 157.50-strike puts with an implied volatility of 20.86 and sell the Sept. 17 152.50-strike puts with an implied vol of 24.55.
I will pay up to $1.45 for this five point spread with five days to go.
I will take my losses if the spread trades down to $1 and begin profit taking around the $2.45 area.
Thanks for Reading … See You Next Tuesday!