Daily Stock Market Equity and Options Trading Commentary

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Saturday, July 25, 2009

Weekly Stock Watch: Bullish Breakout Stocks on HUGE Volume

In this post is a fresh list of stocks which have experienced massive buying. I believe the stocks listed in this post are worthy of adding to the stock watch list. As stated at the bottom of this post, I have chosen three stocks which I may be speculating with in the weeks to come. As stated in previous blog posts I'm a firm believer of stocks which have had significant moves higher on big volume. Some of these stocks will sell off, and some will continue to move higher, it is important to use caution when purchasing and use discipline when selling. All of these stocks have had nice moves higher on huge volume (% volume increase compare to 50 day average).

For the week of July 27, 2009, the stocks which are on my watch list are listed in the table below.

Company Ticker Price Increase % Volume Increase

Acorn Energy, Inc. ACFN 3.13% 85.39%
Alexion Pharmaceuticals, Inc. ALXN 5.42% 59.73%
Ariba, Inc. ARBA 8.87% 287.87%
ArvinMeritor, Inc. ARM 19.27% 259.63%
CDC Corporation CHINA 18.59% 474.24%
CyberSource Corporation CYBS 9.42% 305.66%
Exelixis, Inc. EXEL 13.89% 111.14%
Horizon Lines, Inc. HRZ 33.75% 287.46%
inContact, Inc . SAAS 14.98% 183.95%
Inter Parfums, Inc. IPAR 15.48% 296.04%
Jinpan International Limited JST 6.42% 114.37%
LaserCard Corporation LCRD 11.18% 357.53%
Manitex International, Inc. MNTX 42.70% 2778.15%
RealNetworks, Inc. RNWK 14.59% 219.64%
Regeneron Pharmaceuticals, Inc. REGN 5.76% 107.51%
RF Micro Devices, Inc. RFMD 15.24% 241.09%
SciClone Pharmaceuticals, Inc. SCLN 5.29% 88.90%
Seattle Genetics, Inc. SGEN 13.74% 432.81%
Select Comfort Corp. SCSS 21.36% 267.13%
SonicWALL, Inc. SNWL 14.08% 726.66%
Standard Motor Products, Inc. SMP 0.98% 148.15%
The Black & Decker Corporation BDK 10.11% 188.19%
Tix Corp. TIXC 19.93% 380.86%
Vical Incorporated VICL 11.15% 88.64%
Westell Technologies Inc. WSTL 10.74% 615.34%

As you may know some of these stocks could give back all of their gains just as quickly, so instead of purchasing the stock, sometimes I purchase at or near the money call options on the stock. Purchasing call options is a cheaper way of opening a position on a stock, but if the stock sells off, you'll lose 100% of the premium you paid for the option and will not hold the stock, however if the stock continues to rally, you're % gain will most likely be much greater than if you purchased shares on the stock. To learn more about opening an option position like this click here.

Not all of these stocks have options traded on them, but the ones which do could pay off in big ways. I used this strategy when purchasing STEC Inc (STEC), and it paid off as STEC continued to rally after the calls were purchase (see more here).

3 stocks which have really caught my eye from the list above, and have options available on them are: LaserCard Corporation (LCRD), Alexion Pharmaceuticals, Inc. (ALXN), and SonicWALL, Inc. (SNWL). I'll be looking at purchasing call options for the August option expiration starting Monday.

The Trade:

LCRD Option Trade: Purchase the in the money August 5 call options. To open this contract as of close Friday July 24, 2009 would cost roughly $35 per contract. Buying on weakness is key; If LCRD pulls back, I may buy some of these contracts. These options expire August 22, so if I could open a position on weakness, and then LCRD rallies, I would most likely look at writing out my August 5 call options for the August 7.50 call options (known as a vertical call spread- learn more here). I would do this because it would lower the cost of my position (at the same time limiting my upside), but I have completed spreads where I could not lose (waiting for a rally in the stock and selling the higher strike call for more premium than I paid for the lower strike call).

ALXN Option Trade: Similarly to the example above I would look at creating a spread, but I would use the calendar spread option strategy. I would buy deep in the money call options for the January 2011 20 strike call option. As of close Friday this would cost roughly $2,400 per option contract. I would then write this stock out monthly until I was called out. I would write the August 2009 45 strike call option out for $90 per contract. This would give me downside protection on my initial investment of 3.75% and would yield a return of 7.92% in less than 4 weeks. The current options market is factoring in a 35.3% chance of having this stock called out at expiration. In that case I would simply write a similar strike hoping for another nice premium for the September options expiration.

SNWL Option Trade: I would look at all out speculation with this company, as the share price and volume both exploded. I would look at getting into the September 2009 7.50 strike call options on this stock. This would cost me roughly $50 per contract as of Friday's close, but I would look to get in on weakness. To break even the stock would need to get to $8 a share, and getting the stock over that isn't out of the question, especially if this rally continues. The current options market is factoring in a 21% chance this stock is at or above $10 a share by the September options expiration.

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double-a said...

Another great type of trade that I've gotten into is buying both the calls and puts at the money if you are fairly certain that the stock will move to make one option or the other a greater value than what you paid for both of them or even enough to profit from the intrinsic value from the increasing option and sell the decreasing option for the time value that is left. Limited risk/ limited reward.

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