Trade Idea - Bearish Risk Reversal with Capped Risk on JPM

Disclaimer: The trades discussed in this blog reflect the author's personal strategies and decisions. These are not financial advice and should not be considered recommendations to buy, sell, or hold any financial instruments. The author is not a licensed financial advisor. Options trading carries significant risk, and readers should perform their own research or consult a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results.

New trade on JPMorgan (JPM), and this one is a little different from what I usually post. It's a bearish capped risk reversal: a risk reversal (short call plus long put) where I cap the upside loss with a long call further out. That extra call turns the otherwise-naked short call into a defined-risk call spread, so the whole thing has a hard floor on the loss side.

IV rank on JPM is only around 35%, which normally isn't a level I'd bother selling premium at. But I made an exception here. I wanted some downside cover on a big, liquid name in case the broader market rolls over in the next few weeks, and I needed to add negative delta to rebalance my portfolio, which had drifted a bit too long. This trade does both.

For reference, here is the current price chart of JPM:

Here's the P/L profile:

The shape is exactly what I'm after. If JPM just sits still or drifts, I keep the full credit. If it rallies hard, my loss is capped. And if the market does roll over, I'll have a genuinely good trade. I like the asymmetry of the trade.

The tradeoff, as always: low IV means I'm not getting paid much for the short call, so the "quiet" outcome only earns that $73. I'm fine with that here because I'm really buying downside protection and a delta adjustment, not chasing premium. Plan is to close on decay if JPM stays boring, let the put run if we get a selloff, and roll the call spread up and out if JPM grinds toward $367.50, since the loss is defined either way.

As always, I have logged the trade in my trade log.