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Tuesday, November 17, 2009

Breakout Stocks on BIG Volume November 16, 2009 & RINO Detailed Option Trade

Here is a tall list of stocks which traded higher Monday November 16, 2009 on unusually higher volume. When we have a move such as we did Monday, it is not unusual to see this many stocks moving higher on greater volume than the 50 day average. I will keep an eye on these stocks Tuesday to see if there is continued buying pushing the stocks higher. This method is just one of the ways I use to pick stocks to structure particular option trades. This post requires the knowledge of stock options. To learn more about the option strategies outlined in this post, risks, pricing, calculations, other strategies, and options in general, click here.

The table below shows the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). For your convenience I have ranked the stocks in order from greatest to least volume % change.

Company Ticker Price Change Volume Change
Crystallex Intl Corp KRY 73.08% 2042.84%
Nabi Biopharmaceuticals NABI 26.40% 1934.15%
Wave Systems Corp Cl A WAVX 9.91% 472.94%
K H D Humboldt Wedag KHD 19.59% 463.71%
Faro Technologies Inc FARO 12.57% 422.79%
Landrys Restaurants Inc LNY 18.05% 403.28%
Phase Forward Inc PFWD 7.25% 291.97%
Dataram Corp DRAM 25.21% 279.89%
Bristol-Myers Squibb Co BMY 4.83% 272.72%
Evolution Petroleum Corp EPM 7.58% 263.01%
Ishares S&P/C 1-3 Intl T ISHG 0.69% 230.83%
Willbros Group Inc WG 6.72% 220.32%
Aixtron A G Ads AIXG 3.31% 188.16%
Immunogen Inc IMGN 4.83% 184.91%
Geoeye Inc GEOY 2.75% 170.79%
Nara Bancorp Inc NARA 15.03% 167.76%
Nicholas Financial Inc NICK 5.61% 164.63%
Peet's Coffee And Tea PEET 6.75% 152.69%
Steven Madden Limited SHOO 6.78% 147.47%
Oplink Communications OPLK 2.95% 133.39%
Rightnow Technologies RNOW 6.59% 119.01%
Home Inns & Htls Mgt Ads HMIN 3.58% 119.00%
RINO International Corp RINO 8.18% 97.91%
Sirona Dental Systems SIRO 2.96% 96.41%
T I M Participacoes Ads TSU 5.71% 82.49%
Comp De Bebidas Adr ABV 3.60% 71.23%
N B T Y Inc NTY 2.41% 69.08%
Par Pharmaceutical Cos PRX 2.23% 66.05%
Salesforce.Com Inc CRM 1.09% 40.34%
Valeant Pharmaceut Intl VRX 1.95% 40.10%
James River Coal Company JRCC 4.33% 38.25%
Vanguard Industrials Etf VIS 2.11% 38.02%
M & F Worldwide Corp MFW 4.04% 35.94%
Nu Skin Enterprise Cl A NUS 3.44% 34.29%
Priceline.Com Inc PCLN 2.08% 33.74%
Duoyuan Global Water Ads DGW 3.31% 31.11%
America Movil Sab Adr A AMOV 2.59% 21.95%

There are many stocks listed above which I seen appear many times on similar lists lately. In some of my previous breakout bull reports, I outlined an option strategy on both HMIN (see it here) and NTY (see it here). This list is also packed full of stocks I have been keeping an eye on and would like to own as I think they will trade higher. Out of the stocks listed above, I will write about RINO International (RINO), as I have watched it appear several times in the last month on my daily screen for these stocks. This stock exploded to the upside Friday after a great earnings release. Note that this stock closed 90 cents below its high for the day (also 52-week high) which could mean a reversal is in play, however it came off of the highs on light volume. I will look to be purchasing this stock if it can trade back up near a 52 week high on above average volume in the near future. With the help of the market I believe this stock will continue much higher. The December option contracts on RINO also traded much higher than the daily average Monday. I believe it will be worth describing a detailed option play I am interested in below. Note that many of the stocks listed above will be good plays and many will be bad plays, I list them all to show possible breakout stocks and write about a few of the ones I am interested in. (Click chart to enlarge).

RINO International Option Trade: As we can see from the 30 day (30 minute interval) chart above, this stock gapped higher and broke through resistance on huge volume Friday, and continued higher Monday to break and close above the 26.50 resistance level. From the chart we can see a Rising Wedge formation is emerging which is a bullish pattern. If the stock can breakout of this formation, I believe it has a shot at 30 to 35 a share in the near future, therefore I wouldn't mind getting behind the stock, at least until a bearish pattern emerges and a downtrend is confirmed in this stock. Earnings being out of the way not only takes out the risk of having the stock report poorly and sell off, but also prices the options quite a bit cheaper in terms of implied volatility.

As stated above, I believe the stock has a shot at 30 to 35 a share, so I am looking to open Vertical Call Spreads on this stock. This is a fairly simple trade to open and only requires the use of two separate option contracts, the December 30 & 35 Call options. Both legs in this spread look as if they have gaining interest as of today, as the December 30 strike call options traded almost 60% of the open interest Monday, much higher than the daily average, and the December 35 strike call option contracts traded over 500% of the open interest Monday, easily trumping the average daily volume on these contracts. The theoretical price for this spread as of close Monday is roughly $130 per option spread.

Profit and Loss: Let's say I opened just one spread. If RINO sells off significantly, this strategy would lose a maximum of $130 per option spread. Now let's assume the stock continues to rally and closes at December option expiration at or above $35, this position would return maximum profitability, $370 per option spread or 285%. It is worth noting the break even point for this strategy, it would be at $31.30 per share of RINO, therefore anything above this level in the underlying at December options expiration would result in a profitable option trade.

This is a bullish strategy and should not be considered if you think the stock will sell off in the near future. However if you feel the stock could move higher in the near future, this strategy could yield a nice gain. To get a better understanding of stock options and different option strategies please check out my Simplified Stock Option Trading E-Books.

These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

The reason option volumes have surged in the last five years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here). Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position.

Short PCLN November 175 Put Options

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