Friday, 8th October, 2021
1/ Indexes closed with mild losses after jobs report
2/ J.P. Morgan Chase sets up as earnings season approaches
3/ Wells Fargo traders anticipate good news
4/ The bottom line
1/ Indexes Closed with Mild Losses After Jobs Report
Major indexes posted minor losses, trading relatively flat after momentum built by a deal to raise the debt ceiling was dashed by a lackluster jobs report. The largest move came from iShares Russell 2000 ETF (IWM), which fell 0.7%. Invesco’s Nasdaq 100 ETF (QQQ) fell 0.5%, while State Street’s S&P 500 Index ETF (SPY) fell 0.2%, and the Dow Jones Industrial Average ETF (DIA) traded relatively flat. It appeared indexes would close a volatile week with a steep sell off. However, buyers stepped in to help major averages all finish green for the week.
Numbers from the Bureau of Labor Statistics’ nonfarm payroll report came in lower than expected. Payrolls rose by only 194,000 in September, well below the 490,000 expected by Wall Street analysts. On the plus side, the unemployment rate fell to 4.8%, lower point than the 5.1% predicted.
Job numbers have remained at the center of the Federal Reserve’s plan to slow its purchases of $120 billion of bonds per month. The U.S. 10-Year Treasury (TNX) rose to 1.6% but did not have the same drastic effect on technology stocks as it did the last time it rose. This could mean that traders are still optimistic toward growth companies, even as inflation looms.
The chart below illustrates the recent performance of the four major averages. After a downtrend in September, and a period of consolidation to start the month, indexes have increased to start the quarter. A continual period of higher lows could mean that higher highs are possible going forward.
2/ J.P. Morgan Chase Sets Up as Earnings Season Approaches
The open interest for J.P. Morgan (JPM) is rising ahead of the company’s fiscal third-quarter earnings announcement. Investors have recently bid JPM share prices to an above average range. However, it appears option traders are positioned for the stock to fall in the near term. The current open interest on put options is higher than normal over the last 52 weeks, while the open interest on call options is weaker than usual over the same time span.
JPM’s open interest features over 636,000 puts compared to over 482,000 calls, demonstrating the bias that option traders have. Friday’s trading volumes did skew toward calls, as 63% of total contracts traded were call options. This could be because JPM opened strong to start the trading session before fading the rest of the day.
For Oct. 15, which is the next monthly expiration date for options, the largest open interest is on the $170 call. At current levels this option is in the money. It should be noted that for options at or close to the money, the $170 and $172.50 puts have an increase in open interest but a decrease in implied volatility, suggesting that traders are selling more contracts on short positions than buying. So, while the open interest skews toward put options, if these contracts are being sold, it would reflect a bullish sentiment toward JPM earnings, which are due to be reported Wednesday before the market opens.
3/ Wells Fargo Traders Anticipate Good News
Investors have also slightly bid up the share price of Wells Fargo (WFC), which is also reporting earnings next week. The share price is in an above average range, trading above its 20-day moving average. Recent trading volumes lean heavily toward calls, as calls outnumbered puts more than 4.5-to-1 in today’s trading.
The open interest also favors call options, albeit slightly—1.4 million calls compared to 1.2 million puts. This number of puts is relatively higher than usual over the past 52 weeks, while the number of calls is lower than normal. However, the put/call ratio is in line with the 52-week average.
The option with the highest open interest for Oct. 15 is the $50 call option. This option is currently out of the money, which means most option traders see a potential 4% upside for WFC around earnings. Implied volatility is falling for put options, which could mean that more of these options are being sold than bought, which would translate into a bullish sentiment toward WFC. The option straddle is currently implying a 4.5% move based on earnings, which WFC will report on Oct. 14 before the market opens.
4/ The Bottom Line
Stock indexes retreated a bit based on disappointing jobs numbers; it seems apparent that the economy may still be recovering, even if it is progressing more slowly than anticipated. Traders are poised for opportunity in JPM and WFC, two companies reporting early in the earnings season.
Originally posted on 8th October, 2021
Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.
Disclosure: Interactive Brokers
Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Investopedia and is being posted with permission from Investopedia. The views expressed in this material are solely those of the author and/or Investopedia and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Disclosure: Options Trading
Options involve risk and are not suitable for all investors. For more information read the Characteristics and Risks of Standardized Options, also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or copy and paste this link into your browser: