HOT TRADING STRATEGIES FOR A COLD MARKET
Daily Stock Market Equity and Options Trading Commentary

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Friday, March 20, 2009

Difference Between Options Expiration, Triple Witching, and Quadruple Witching

Triple witching is the stock market trading day after Halloween... Okay I'm just kidding!

Since my blog is all about stocks and options and today is an options expiration, I decided to write this post real quick. Today is a special case of options expiration, it is a quadruple (triple) witching day, so I thought I'd share the difference for those who may not know. First of all quadruple (triple) witching occurs on the third Friday of each of the last months of a quarter (March, June, September, and December). The original term was triple witching and is a phenomenon when stock options, stock index options, and stock index futures all expire on the same day. However when single stock futures (SSF's) were introduced to traders it made it 4 types of instruments all set to on these four days a year, hence quadruple witching. Options expiration is the third Friday of every month, but it is called special names like double, triple and quadruple witching. The day can be extremely volatile, and the final hour of trading is known as the "witching hour" (not kidding this time), so buckle up it may be a bumpy ride.


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Visa Stock Option Trading Strategy for April

I have been quite bullish on Visa for a while, but it has not paid off lately. In tonight's blog I would like to introduce you to an option strategy I have been using lately. It is speculating with options, which costs less, but limits the upside. Today I was buying the Visa 62.50 April call options, and selling the Visa 65 April call options. Lets assume I used this strategy with 10 option contracts. Today the April 62.50 was trading at 25¢ or $25 per option contract, and the April 65 was trading at 10¢ or $10 per option contract. I trade with TradeKing (11.45 for 10 option contracts) so my cost to buy 10 contracts for the 62.50 was $261.45 ($25 X 10 contracts, and $11.45 for commissions), and my revenue from selling the 10 contracts for the 65 was $88.55 ($10 X 10 contracts, and 11.45 for commissions). So overall my cost for this is $172.90 (rights to 1000 shares).

Now best case scenario is if Visa gets past 65 by that third Friday in April, if this is the case I would net $2327.10 on a risk of $172.90 or 1300%+. In order to make money on this bet Visa would need to get to $62.68 and you would be up $7.10. Anything after is gravy until $65. The bad news about this, is that you cap the upside. Say Visa goes all the way to 70 then you would miss out on a potential $5000 from limiting the upside by selling the 65 call. Of course I waited until today when Visa was trading at a discount of 7%. The other part is that if Visa doesn't make it to at least $62.68 by option expiration, you lose 100% of your bet ($172.90). This is a very cheap way to speculate and even though the odds are that it won't pay off, when it does it pays off in major ways!

My reason for speculating with Visa stock options: Visa has bounced off of its 50 day moving average quite nicely in the past. Today looked like it was setting up to hit its 50 day MA once again, so if it does not break below that, we could see a nice rally in Visa stock up to resistance at around 58. The chart can be seen below. The green line is the 10 day moving average, blue line is 50 day moving average, and turquoise line is the 200 day moving average. If it bounces of of the 50 day moving average and can rally above its 6 month resistance which is around 58, it has the potential of easily getting to the 63-64 range where the 200 day moving average line intersects the axis. After last quarter and a very strong earnings report, it should be able to get through its 6 month resistance with help from the market.



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Thursday, March 19, 2009

Learn How to Trade Stock Options

This is a post for my Stock Options E-Book. I have revised my e-book with better than ever examples, and descriptions. I have also included some information about the Greeks and how options are priced. The price I charge is $7.99 and I am now offering a 100% money back guarantee! I guarantee you'll be able to understand options more clearly and will have a chance at creating wealth from stock you hold in your portfolio. I have simplified the terms so that it is in plain English. You will not be confused with my E-Book like most text books you find about options. Below are some examples of options I've traded on my Trade King account, and it is not proving that I've made a ton of money, but in terms of % gains it is a lot of money. Of course I have lost money speculating, but when writing covered calls it is much safer!

The first two examples are of stock I owned called Western Refinery. I started with 2000 shares, and wrote out 20 contracts for month 1, at expiration 8 contracts were exercised, and the other 12 expired without getting exercised. I then had 1200 shares left and wrote them out for another month, but purchased them back for 20% of what I received. The second two examples are of stocks I speculated with. So try my E-Book and learn how to trade stock options guaranteed!
(Click on an image to see a larger more clear picture).












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Wednesday, March 18, 2009

Can Goldman Sachs Break 100?

Goldman Sachs is about $1 away from breaking $100. This stock has attempted to break $100 at least 4 times in the past 3 months, but has been unsuccessful every time. My prediction is that if GS does break through 100, we could see a rally up to the next resistance which is about 120. The chart below shows this the current level of GS is far above both the 10 (green line) and 50 (blue line) day moving averages, but the 200 day moving average (turquoise line) is about 120. Look how many times GS has tried to get to 100 and break above, I can count 4 within 5 points, and 6 altogether within 10 points. If GS does not break through 100 we could see it back at the 50 day moving average quite easily, especially if this market rally fades.




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Tuesday, March 17, 2009

Stocks Give the Green for St. Patrick's Day

Today there was a broad market rally led mostly by Tech. The nasdaq was up over 4.1%. I did some buying of SDS today. I also purchased some April 95 calls for $410 per contract. I think we could give back some of this rally (I hope we don't, but nothing goes one way forever). However looking at the RSI (which really means nothing in this irrational market), it looks like we are only overbought on a: 1 hour chart, 1 day chart, and 2 day chart. So on a short term basis we are overbought but looking at a 3 month basis we are not overbought yet, however we are trending up. I would use the strength to sell and possibly buy SDS. I use Trade King for my trades so I am only being charged about $5 a trade, which is very easy to make on any batch of stocks in this volatile environment

If the market can hang in there, I think we'll see a broad rally among the commodities especially crude oil. I have been speculating with the double leveraged ETF UCO to capture a nice gain in the last 2 days. I purchased some call contracts back for the July 7.50 on UCO for $170 per contract yesterday, and could have flipped them today for about $245. Not a bad gain in a day but I did not sell I think we can hit $55 a barrel within a month. I hope crude oil does not surge too quickly thought because it will hurt virtually all other sectors in our fragile economy.

Now for a crazy question... What's the deal with Sirius Satellite radio??? Up over 40% today! I bought 40,000 shares at about a nickel a share and sold covered calls for the January $2.50 strike over the past week for a nickel a share. I am in these 40,000 shares of Sirius for free. And if they do get to $2.50 (which I think is extremely unlikely), then I wouldn't mind taking $100,000 for stock I am in for virtually FREE on. I could not find any news other than an analyst from Barrington rated it as Market Perform, so if you have any info on why this stock has almost doubled in the past week, please post a comment below.

Happy St. Patrick's Day



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Monday, March 16, 2009

It's Been A Year Already...

I remember it like it was yesterday when Bear Stearns was taken over by JP Morgan Chase. I was sitting at my kitchen table when I received an email from Wall Street Journal stating that BSC was bought for $2 a share. It was then revised the bid went to $10 a share. I remember texting everyone on my phone "Wall Street won't be wearing green for St. Patrick's Day" but it was not as bad as I thought it would be... The months to come after however have certainly been bad. So let's hope tomorrow is a GREEN day for all of the bulls out there... Happy St. Patrick's Day!


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Stocks I Just Picked Up

I just picked up some Calls on the July 7.50 UCO for 1.70 a share, the ticker for the option is UCOGU. I expect oil to have a nice rally to 50 by the end of the month. I also picked up a stock that is a nice hold because of the juicy dividend (long run). The stock has cut its dividend significantly but in the long run it should pay it out once again. The stock is Frontline (FRO) they are an oil tanker company. The stock has been beat down and I picked some up today for $17.30. I expect FRO to rally when crude oil rallies this month into spring. FRO trades at under 10 P/E. I have been accumulating FRO for quite a while. This is a long term hold, in the previous two quarters they've paid 75 cents a share out, but the previous two before that was about $3-$4 a share. Look at their long term history the average yield for this stock is about 12% or higher.


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Possible Breakouts for the Week to Come

Here is a list of stocks I will be keeping my eye on for the week to come. They all have a high bull/bear ratio. The following stocks from greatest to least (bull/bear ratio) are:

Bovie Medical Corporation BVX (14:1)
ev3 Inc. EVVV (14:1)
Danvers Bancorp, Inc. DNBK (13:0)
Ctrip.com International, Ltd. (ADR) CTRP (12:1)
NetSuite Inc. N (12:1)

These are all stocks on my radar for the upcoming week. I'll wait for a 7-10% pull back to purchase any of them and set a tight stop loss if I happen to purchase any of them. If I purchase any of them, I will be selling into strength.


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U.S. To Create Even Tougher Finance Regulations

I just received an email from Wall Street Journal titled "U.S. To Toughen Finance Rules". The article mainly talks about how the Obama administration is going to make it harder for big bank executives to receive big bonuses, require some kind of oversight to large hedge funds and monitor their payment and settlement system, and possibly requiring banks to hold more capital (which caps growth) during good times, so the reserve can safely be tapped into during worse economic times. For the entire article on the WSJ website click here.


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A Bit of Humor... Where Did My 401k Go?



This is a video my friend made and I like it so I told him I'd put it on here. At least he can shine a little humor on the terrible market lately. Hope you enjoy.


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