The back story: I have liked the looks of financials for a while now; while tech has been tricky around this earnings season with the mixed bag of results from the FANG stocks, the banks have mostly been running strong.

That said, while looking at the bankers, the only one I actually purchased was Regions Financial (RF) on a catalyst play on July 25 (I sold it Tuesday at a profit); the rest have been on my watch list, inching closer to becoming actual trades.

Davis Martin’s play on Regions Financial

Late Tuesday, I would have told you that it was time to move on JPMorgan Chase & Co.; I expected to be buying options on the stock today.

Why others are buying: JPM has been setting up a continuation pattern. At one point on Tuesday, you could look at the stock and see the potential for a 10 percent gain in short order.

Why I’m not: When the stock gained over 1.3 percent yesterday, it changed the risk-reward. In short, JPM is over-extended, for now.

What must happen to change my mind: The stock, at this point, would need to step back to $92.50, a penny off Tuesday’s open. That’s possible – and if it happens, I will be considering the risk-reward outlook on September at-the-money call options and acting if I think there’s a profit of 10 percent or more to be had – but until it happens, I’ll be picky before trading any of the financials, no matter how much I like the sector.

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Davis Martin is the head trader at Dailyprofitmachine.com. He trades SPY calls and puts and swing trades individual stocks and stock options. At the time this article was published on RagingBull.com, he had no shares or options in JPM but was watching the stock and looking for an entry point as described here. He has not traded JPM this year.

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