Daily Stock Market Equity and Options Trading Commentary

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Wednesday, November 18, 2009

Volume Talks: Hot Stocks on Heavy Volume & Detailed Buy Write Option Trade

Here is a list of stocks which traded higher Tuesday November 17, 2009 on unusually higher volume. As always, I will keep an eye on these stocks Wednesday 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. The second part of 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
Tween Brands Inc. (TWB) 9.35% 1827.16%
Nabi Biopharmaceuticals (NABI) 14.44% 1180.07%
Jinpan International Limited (JST) 8.49% 490.42%
China Automotive Systems, Inc. (CAAS) 4.74% 380.90%
The Dress Barn, Inc. (DBRN) 8.92% 322.13%
SINA Corporation (SINA) 9.61% 247.86%
Alkermes, Inc. (ALKS) 14.43% 246.55%
Aixtron AG (AIXG) 2.11% 212.84%
Mead Johnson Nutrition CO (MJN) 2.64% 182.27%
Longtop Financial Technologies Limited (LFT) 5.85% 178.91%
Omega Healthcare Investors (OHI) 2.66% 93.92%
ION Geophysical Corp. (IO) 7.07% 85.02%
NBTY, Inc. (NTY) 2.07% 83.03%
The DIRECTV Group, Inc. (DTV) 2.05% 73.87%
Veeco Instruments Inc. (VECO) 5.07% 53.80%
Companhia de Bebidas das Americas (ABV) 1.11% 50.72%
Liberty Media Corp (LMDIA) 2.52% 27.76%
Hecla Mining Company (HL) 5.31% 27.55%
M & F Worldwide Corp. (MFW) 3.12% 20.37%

There are many stocks listed above which I have seen appear many times on similar lists lately. 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 Hecla Mining (HL). This stock exploded to the upside after a good earnings release November 2, 2009. Note that this stock closed a penny from its high which is also its 52 week high, this is a very bullish sign. With the help of the market and a weak dollar, I believe this stock will continue much higher. 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).

Hecla Mining Option Trade: As you can see from the 30 day (30 minute interval) chart above, after consolidating for much of October and selling off with the rest of the market into early November, Hecla Mining (HL) has started to trend up and with some momentum! Monday HL broke two bullish chart formations: the rectangle and triangle. Judging by this chart and my thoughts on a weak dollar going into the end of the year, I certainly would and most likely will get behind this stock, at least until a bearish pattern emerges and a downtrend is confirmed in this stock. I will give two examples of the Buy-Write Option Strategy below.

Neutral Buy-Write Strategy: Let's say I don't think Hecla Mining will move too much in either direction by December options expiration, I would look at structuring this strategy around the December 6 strike call options. Using this strategy I will protect my shares of HL 10.6% (assuming they were purchased for 6.15 a share) and if HL expires at December options expiration above 6 a share, this strategy would return 8.1%.

Bullish Buy-Write Strategy: Let's say I believe Hecla Mining will continue higher and has a chance at getting to 7.50 a share by December options expiration (22% higher from Tuesday's closing price). I would look to structure this trade around the December 7.50 strike call options. Using this strategy I would only protect my HL shares by 3.3%, but my potential gains would also be much greater. If HL closed at or above 7.50 a share on December options expiration the return for this strategy would be 25.2%.

This strategy requires the shares of the underlying stock and the knowledge of stock options. It is important to note that the downside risk of holding the stock still exists with this strategy, however some of the downside loss is eliminated due to the premium received from the call options. If you feel the stock could move sideways or higher in the near future, the strategies outlined above 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.

Disclosure: Long IO

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