Covered Call Recommedation on JP Morgan Chase (JPM) currently trading at $31.30.
STRATEGY: Look at the March 25 covered call. For each 100 shares of JP Morgan (JPM) stock you buy, sell one March 25 covered call option for a 29.40 (31.30 – 1.90) debit or better. That’s potentially a 5.4% assigned return in 32 days.
Risk: The technicals for JPM are bearish with a possible trend reversal. The stock is under accumulation with support at 30.11. S&P rates this stock 4 STARS (out of five) – buy. The stock has to drop 6.5% to fall to the breakeven level.
Protective Put: Those seeking more protection may look at purchasing the March 2012 30 put at $3.15. Sell the put when you exit the covered call position.
S&P Research Notes: S&P maintains buy recommendation on shares of JP Morgan Chase and Co (JPM). Q3 EPS of $1.02, vs. $1.01, misses our estimate of $1.10 on higher than expected loan loss provisions. As we expected, investment banking and trading fell significantly from Q2. However, credit card revenues, net interest income, and mortgage fees were in line with our expectations. Quality of earnings improved greatly as reserve releases were relatively small. We lower our ’11 EPS forecast to $4.67, from $4.87. We also reduce our target price by $5 to $47, based on a slight premium to peers 10.0X multiple on our forward four quarters EPS projection of $4.76.