The first major bank stock JP Morgan Chase (JPM) reports their fourth quarter earnings tomorrow. This should be interesting because we are near some all time highs for the equity market (notwithstanding today’s sell off). So where do things go from here? There are a few trains of thought. Are valuations of individual names too high for the upcoming earnings reports? Are the earnings strong enough to sustain these prices or increase them? Will the earnings show some weakness compared to the general economy and everyone runs for the exit door?
Either way a lot of traders like to trade around the earnings report because of higher than normal option prices. These can lead to quick gains as well as quick losses. So you better know what you are doing. These are instant gratification trades as once the news is out you will most likely know if you are making money or out. So this is a case where you better have an idea of what might happen.
Well to help you trade rationally here are some statistics derived from the last earnings reports:
If JPM closes today at 57.75
On average expect it to close between 55 and 60 by the end of the week. If it goes according to average expect a $1.52 move in either direction by the end of the week. Out of the past 13 times it has also stayed flat once. If the largest change (up or down) over the past 13 earnings reports is repeated, expect a move more to the tune of $4.00 in either direction.
Perhaps this helps those option traders who like to buy or sell volatility around earnings. If you are long or short the market in general keep in mind that 9 out of the 13 previous earnings reports The S&P 500 or SPY has moved in the same direction as JPM has. Something to consider if you have a position in the general market. Coincidence, correlation, whatever. Just be aware of the things that you might have overlooked. Remember if you are a short term trader it doesn’t pay to be right. It pays to be right, right now.
Good luck and trade rationally.