Posted by Chuck Hughes | Dec 18, 2023 | Chuck’s Trade of the Day

On Friday, we looked at a Daily Price Chart of, Inc., noting that CRM stock has been making a series of new 52-Week Highs recently.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for J.P. Morgan Chase & Co. stock symbol: JPM.

Before breaking down JPM’s monthly chart let’s first review what products and services the company offers.

JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM).

Now, let’s begin to break down the monthly chart for JPM stock.

Below is a 10-Month Simple Moving Average chart for J.P Morgan Chase & Co.

Buy JPM Stock

As the chart shows, in November, the JPM 1-Month Price, crossed above the 10-Month simple moving average (SMA).

This crossover indicated the buying pressure for JPM stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish uptrend.

Now, as you can see, the 1-Month Price is still above the 10-Month SMA. That means the bullish trend is still in play! 

As long as the 1-Month price remains above the 10-Month SMA, the stock is more likely to keep trading at new highs and should be purchased.

Our initial price target for JPM is 172.00 per share.

143.6% Profit Potential for JPM Option

Now, since JPM’s 1-Month Price is trading above the 10-Month SMA this means the stock’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a JPM call option purchase.

The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat JPM price to a 12.5% increase.

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following JPM option example, we used the 1% Rule to select the JPM option strike price but out of fairness to our paid option service subscribers we don’t list the strike price used in the profit/loss calculation.

Trade with Higher Accuracy

When you use the 1% Rule to select a JPM in-the-money option strike price, JPM stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if JPM stock is flat at 165.71 at option expiration, it will only result in a 4.4% loss for the JPM option compared to a 100% loss for an at-the-money or out-of-the-money call option.

Using the 1% Rule to select an option strike price can result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options.

The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks.

The prices and returns represented below were calculated based on the current stock and option pricing for JPM on 12/18/2023 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if JPM stock increases 5.0% at option expiration to 174.00 (circled), the call option would make 69.6% before commission. 

If JPM stock increases 10.0% at option expiration to 182.28 (circled), the call option would make 143.6% before commission and outperform the stock return more than 14 to 1*. 

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

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