Trading Nation

Here's how to play one of the top-performing banking stocks


Banking earnings are done and dusted, and Blue Line Capital President Bill Baruch says one of the top performers could keep the rally going.

"J.P. Morgan kicked off earnings season with a strong beat. The stock has a lot of momentum and it's been trading very well up to earnings, and now we're seeing record highs," Baruch said Friday on CNBC's "Trading Nation."

J.P. Morgan beat on the top and bottom lines in its third quarter thanks to a strong showing in consumer lending. The largest U.S. bank by assets reported consumer and banking net income of $4.27 billion, up $187 million from a year earlier.

The stock climbed 4% last week, nearly double the gains on the broader KBE bank ETF. It is also less than 1% from all-time highs.

"One of the best ways to play more upside with limited risk is using call options," Baruch said. "The earnings season in general has been off to a good start, but I don't want the downside risk of, say, if U.S. and China turn sour or other earnings start to sour."

He said J.P. Morgan looks to be on the path to $130 a share before the end of the year, nearly $10 per share above its closing price last week.

On the expectation J.P. Morgan continues to outperform over the next month and a half, Baruch is buying at-the-money 130 calls with Nov. 29 expiration for $3.50 per option.

"This gives you at-the-money call exposure. If this breaks out and continues to break out, you're going to capitalize over the next two to three weeks," said Baruch.