What Do Bank Earnings Say About the Recession?

Bear Market, Options, Recession

The market has settled down to some extent after one of the most volatile months on record. However, the reprieve may be short-lived as we head into what is likely to be an interesting earnings period. We all know that most companies are suffering due to the pandemic; the question is, just how much damage has been done?

We don’t know when the economy will fully reopen and how long the pandemic will continue to impact our daily lives. It’s likely because of this that some companies are not releasing any guidance given the uncertain timeframe of the economic shutdown.

Still, there could be quite a bit of useful information gleaned from what various companies say on their earnings calls. It’s not the numbers that matter all that much this time around; rather, it’s anything investors may be able to determine about expectations across various industries.

This week, we get most of the major banks reporting earnings. Like most industries, banks are being hurt by a slowing economy. However, this damage may just be getting started. Banks are setting aside billions in anticipation of defaults and missed loan payments.

Live Options Trading Chat Every Wednesday and Friday [ad]

For example, JP Morgan Chase (JPM) said in its earnings call this week that it has set aside $8.3 billion for bad loans… but it may not be enough. What’s more, JPM has revised its second quarter economic forecast to reflect a 40% reduction in GDP and a 20% unemployment rate. Those are substantial negative numbers.

As a result, JPM shares were down 3% on a day when major stock indices were up 3%. Year-to-date, the stock price is down over 30%, despite being more than 20% off its lows.

At least one trader believes JPM has a ceiling of $115 through next January. The trader sold January 2021 calls at the 115 strike with the stock at $96. The block trade was for 1,200 calls for $4.95, which generated about $600,000 in cash from the premiums.

If the stock is below $115 at expiration next January, the trader keeps all the premium collected. Of course, there’s unlimited loss potential should the share price explode higher.

Betting on a $115 ceiling isn’t a bad plan, given all the negative factors hitting banks this year. However, there are much safer ways to make this trade. Few investors should ever sell naked calls. Instead, using a covered call makes more sense.

By purchasing shares of JPM and selling the 115 calls simultaneously, a trader can significantly reduce risk while still collecting the premium from the January options. Of course, buying shares opens up the trade to downside risk in JPM stocks. However, the bad news is mostly out in the open now, and there may be a limit to how much further the stock will fall.

While a covered call has its own set of risks, it is still much safer than selling naked calls. Being stuck with shares is typically not a problem in the long-term for a major company like JPM; however, having a stock blow through naked calls can be catastrophic to a portfolio.

Read This If You've Ever Lost Money Trading Options

Does everything seem to go wrong right after you place an options trade?

You watch the stock and everything is going right.

Then you open the trade... and within an hour, you've lost money.

It's not your fault. You just simply weren't given the "behind the scenes" knowledge every options professional knows.

If you knew how they worked, already you could've booked gains of:

  • March 3rd VXZ call = 367%
  • March 4th XLY put spread = 170%
  • February 18th WMT put spread = 178%
  • January 14th DISH call = 109%
  • February 11th ETFC call = 1,421%
  • January 28th FAST put = 233%
  • January 21st GLD call butterfly = 156%
  • January 30th XLB put butterfly = 222%
  • January 2nd ARNC call spread = 70%
Just like I did.

The road to success for your first big, triple-digit options win is simple.

Have a checklist for every trade so you don’t repeat rookie mistakes.

For the first time ever, after 20 years, I'm releasing my own personal options trading checklist for no charge.

Click here to get the checklist and stop losing money right now.

I'm only sharing it for a limited time, so claim your copy immediately even if you're not trading right now: CLICK HERE.


[FREE DOWNLOAD] 10 Simple Rules for Trading Options Like a Pro

[FREE DOWNLOAD] 10 Simple Rules for Trading Options Like a Pro

Follow these 10 simple rules from 20-year professional options trading veteran, Jay Soloff and start earning a reliable extra income from options.


NO prior experience needed to master these 10 simple options trading rules. 


Enter your email below and receive access to this FREE guide...

You have Successfully Subscribed!