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Daily Stock Market Equity and Options Trading Commentary

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Friday, September 11, 2009

Most Active Stock Options September 11, 2009

As of today Friday September 11, 2009 the top ten option contracts traded were:
  1. PowerShares QQQ (NASDAQ:QQQQ) September 42 Call Options
  2. PowerShares QQQ October 41 Put Options
  3. S&P 500 SPDR ETF (NYSE:SPY) December 105 Call Options
  4. S&P 500 SPDR ETF December 105 Put Options
  5. Regions Financial (NYSE:RF) September 5 Put Options
  6. Citigroup (NYSE:C) September 5 Call Options
  7. Financial Sector SPDR (NYSE:XLF) September 14 Put Options
  8. PowerShares QQQ September 40 Put Options
  9. S&P 500 SPDR ETF September 100 Put Options
  10. S&P 500 SPDR ETF September 104 Put Options
With only one week until expiration it looks as if some bearish bets have been made. With Regions Financial spinning out a 10 cent dividend on Tuesday, one could say it may be an early dividend play, however they are put options and normally this wouldn't play into action 3 days before it comes out of the share price. With the contract selling as high as 15 cents a share today, someone is very bearish. Also the September 14 puts on the Financial SPDR were among the most active for a second day in a row. Also it is apparent that a strategist may be betting on a big move to come by December, as multiple 105 December straddle positions were opened, trading at roughly $1,000 per option straddle. Sphere: Related Content

Goldman Sachs at 52 Week High

In case you haven't noticed, Goldman Sachs (GS) traded at its 52 week high yesterday, and as of pre-market today it is trading even higher. It seems like yesterday when I was blogging about whether or not Goldman Sachs stock could break through 100. I honestly think this market is overbought, but could it be that the market is just factoring in a better economy and company going forward? I have my doubts and have been taking profits in GS lately. Sphere: Related Content

Wow, 8 Year's Already...

It seems like yesterday when the terrible events took place on September 11, 2009, but it's been eight year's. Most of us will never forget that day, and I'm sure many of us can play the entire day back in our minds. Remembering those lost on September 11, 2009... Sphere: Related Content

Banking on Volatility to Spike: Time to Buy Put Options on Financials?

In this post I will compare some put options amongst some of the most actively traded financial stocks, which will benefit the most from rising market volatility. With the market rallying and volatility sinking like a stone lately, now may be a good time to get long some put options which will benefit from both a sell off as well as rising volatility. Let's face it, there's still a lot of uncertainty going forward, so with the Volatility Index [VIX] at these levels, I believe it is a good time to buy put options. With some negative news we could see a real spike in volatility, I believe it is bound to get back above 30 short-term. In my opinion purchasing in or at the money put options on financial stocks is a better way to hedge versus purchasing expensive out of the money call options on the VIX.

As you can see from the chart below of the S&P 500 (top half) and Volatility Index (bottom half), the VIX bottomed out at 22.58 on August 25, 2009, but the S&P 500 has traded higher since.

I believe the VIX will have a tough time getting below the 22 range. If it cannot break through it and hold, I believe we could see the VIX move higher short-term. The reason I chose to use put options on the financial stocks, is because they are the best performing sector since market bottom, and I believe if we get a short-term correction causing the volatility index to increase, financials will suffer the greatest, meaning put options on financial stocks will benefit not only by the price decrease of the underlying, but also the rising implied volatility.

The table below lists October put options on six major financial stocks, the implied volatility (which will increase as market volatility increases), Vega, and the Vega as a % of the premium.

Company Ticker Strike Implied Vol. Vega % of Premium
Bank of America BAC 17 52.043 0.022 2.18
Citigroup C 5 68.253 0.006 1.07
Goldman Sachs GS 175 33.967 0.221 2.87
JPMorgan JPM 43 39.648 0.054 2.50
Morgan Stanley MS 29 44.936 0.036 2.00
Wells Fargo WFC 28 44.398 0.035 2.06

If the VIX creeps back up and implied volatility on the stocks mentioned above also starts to increase, the two put contracts that will benefit the greatest are the Goldman Sachs (GS) October 175 put contract, and the JPMorgan (JPM) October 43 put contract (based on current levels). However they are more stable financial stocks and if volatility rises or we get a short-term sell off they may not suffer as much as the other financial stocks listed. With volatility approaching a 52 week low and as a shareholder of Goldman Sachs and Bank of America (BAC), I chose to purchase put options to protect my shares as protection is flat out cheap.

If you're like me and don't like the idea of spending a lot of additional money to protect your shares, perhaps you may want to look at writing a covered call, or using a put option spread like the two outlined below. Put spreads are great because they allow you to protect for cheaper, however they limit the protection. To learn more about the option strategies outlined in this post, risks, pricing, calculations, other strategies, and options in general, click here.

Below are two examples of put option spreads that can be used for the month of October on the two stocks from the table that have the highest levels of implied volatility (excluding Citigroup (C) due to very limited strike prices): Morgan Stanley (MS), and Bank of America (BAC).

Bank of America Put Option Spread: Purchase the Bank of America October 17 strike put option and sell the October 15 strike option against it. Making this a spread versus just purchasing a put option to protect will lower the cost of the position by almost 37%, while protecting Bank of America shares 11.8% if the stock happens to sink below 17. This position can be opened for $64 per option contract or 3.7% of the current share price (3.8% of the strike), which is relatively cheap considering it provides over 1 month of protection on Bank of America down to 15 a share, and these bank stocks could easily gain or lose that in a single trading day.

Morgan Stanley Put Option Spread
: Purchase the Morgan Stanley in the money October 29 strike put option and sell the October 25 strike option against it. Using this spread would lower the cost by 27.8% versus purchasing just a put option, while protecting 12.7% from the current share price. This position would cost roughly $130 per contract or 4.54% of the current share price to protect Morgan Stanley shares down to 25 a share over the next 35 days.

I am taking advantage while the VIX is approaching a 52 week low to purchase put protection.
The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart).

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.

Disclosure: Long BAC, C, GS, BAC September 16 Put Options, BAC October 17 Put Options, GS October 175 Put Options, Short C September 5 Call Options, BAC October 14 Put Options, GS October 160 Put Options

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Thursday, September 10, 2009

Most Active Stock Options September 10, 2009

As of today Thursday September 10, 2009 the top ten option contracts traded were:
  1. Altria Group (NYSE:MO) September 18 Call Options
  2. Altria Group September 17 Call Options
  3. Altria Group January 15 Call Options
  4. Financial Select Sector SPDR (NYSE:XLF) September 14 Put Options
  5. NYSE Euronext ETF (NYSELNYX) September 25 Call Options
  6. Citigroup (NYSE:C) September 5 Call Options
  7. Altria Group September 16 Call Options
  8. Wells Fargo (NYSE:WFC) Januray 20 Put Options
  9. General Electric (NYSE:GE) September 15 Call Options
  10. Citigroup October 5 Call Options
Today there was certainly some very mixed action. It is the first time in quite a while Citigroup contracts have been out traded. Four different Altria Group Inc. contracts traded in the most active today... You guessed it, just a dividend play as they'll be spinning their dividend out on the Morning of September 11, 2009. Looks like some bearish bets were placed on the financials today. With just 6 trading days left until expiration, someone made a very bearish bet on the Financial Sector SPDR ETF (XLF). It is also rare to see Wells Fargo trade in the top ten most active option contracts, but someone is making a very bearish bet on Wells Fargo before January. Watch Wells Fargo in the weeks to come for some negative news, perhaps the options market is giving us a hint? Sphere: Related Content

16 Breakout Stocks on Unusually High Volume

In this post are 16 stocks which I will be keeping an eye on at least until September options expiration. These stocks have showed great strength, breaking out to the upside on extremely large volume. The table below shows the company, ticker, Wednesday's $ per share and % increase, and Wednesday's volume increase (% increased compared to 50 day average).

Company Ticker $ / % Change % Vol. Increase




Applied Micro Circuits Corporation AMCC +0.77 (8.61%) 380.83%
Hi-Tech Pharmacal Co. HITK +4.16 (24.10%) 759.25%
MoneyGram International, Inc. MGI +0.33 (11.30%) 168.18%
VIVUS, Inc. VVUS +4.89 (70.77%) 9979.10%
AllianceBernstein Holding LP AB +1.46 (6.25%) 219.53%
Signet Jewelers Ltd. SIG +2.64 (10.76%) 307.75%
Cano Petroleum, Inc. CFW +0.130 (17.79%) 352.58%
Capstone Turbine Corporation CPST +0.19 (13.97%) 249.83%
JDA Software Group, Inc. JDAS +3.15 (16.07%) 177.75%
Parallel Petroleum Corporation PLLL +0.39 (18.75%) 907.15%
Quest Resource Corporation QRCP +0.131 (30.44%) 854.06%
MGM MIRAGE MGM +0.68 (7.23%) 143.19%
MSC Software Corp. MSCS +0.52 (6.83%) 224.54%
Rovi Corp ROVI +0.80 (2.56%) 19.81%
Delta Petroleum Corp. DPTR +0.75 (32.89%) 1735.69%
Gasco Energy, Inc. GSX +0.120 (31.58%) 930.78%

Vivus certainly had a wonderful day on the back of some very positive news, but I feel I may have missed the majority of the move, as news caused that to rocket. The stocks which are most attractive to me from the list above are: Hi-Tech Pharmacal Co. (HITK), JDA Software Group, Inc. (JDAS), Rovi Corp (ROVI), and MGM MIRAGE (MGM) - ROVI and MGM did not have any direct headlines causing Wednesday's share price and volume increase.

Below are two option trade ideas which I may be using in the week(s) to come on ROVI and MGM. To learn more about the option strategies outlined in this post, risks, pricing, calculations, other strategies, and options in general click here.

ROVI Option Trade: Settling at 32.11 a share as of Wednesday it is hard to use options with this stock as it is almost exactly in between the two strike prices listed of 30 and 35. Therefore this is an ideal candidate for a vertical option spread. I would get long this by purchasing the in the money 30 strike October option contract and selling the October 35 strike against it. To open each spread I would need to commit $245, but the stock is already 2.11 in the money so in order to break even the stock needs to climb higher by 34 cents per share. If the stock sells off and approaches the 30 mark, I may look at just going long by purchasing the 30 strike call options and wait for strength in the underlying to write out the 35 strike option. If the stock continues to rally and closes at or above 35 a share on Friday October 16, 2009 this position will return just over 104%.

For trader's I would recommend using a ratio call spread. At current levels of delta, I would consider selling two or three 35 strike call options against the underlying, and if and when the lower delta and 2X or 3X the higher delta value start to equal, I would close the spread. This is much more dangerous than a vertical spread because it requires naked options and not only do maintenance requirements become a hassle, but if the stock really takes off this spread could lose a lot of money. The maximum profit point is at 35 a share, and should be closed by the end of trade on October options expiration day.

MGM Option Trade: I have been bullish on the casino stocks for quite a while, as they are up trending and the extremely high premium (due to the high levels of volatility on the underlying) makes them great for the buy/write option strategy. Like I did for Las Vegas Sands (LVS), I have been looking at using the buy/write option strategy and or selling put options for MGM. As the stock hovered above $10 on Wednesday I was trying to open a buy/write but my bid was not getting hit. I was bidding $9.40 a share, or $10 a share less $60 per option contract for the September 10 calls. I did not fill my order, so will certainly be looking into this until expiration. I would like to open it by Friday, as the theta value on the September 10 option is quite high and I would like to be able to benefit from the time decay experienced over the weekend. I think this stock could sell off significantly with any weakness in the overall market, and if so I will look at using this strategy centered around the September 9 call, or will look to sell September put options. If I happen to get into this position and then the stock sells off causing me to hold this stock after expiration, I would simply look to write it out for the month of October on strength in the underlying.

The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart).

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.


Disclosure: Long LVS, Short LVS September 15, 16, & 17 Call options

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Stock Market Futures Check & Economic Calendar: Thursday September 10, 2009

As of now the stock market futures are up across the board. The DOW futures are up 26 points, S&P 500 futures higher by 3.30 points, and the NASDAQ 100 futures are up 6.25 points. It is still very early and a lot can change by the market open and close. International Trade (big market mover) and Jobless claims data will be released at 8:30 AM. The crude oil inventories have been moved to tomorrow due to the holiday Monday, so they'll be announced half and hour before natural gas inventories at 10:30 AM. At 1:00 PM there will be a 30-Year Bond Auction taking place. All of these releases could certainly move the market. Good luck trading! Sphere: Related Content

Donate for Adopted Children

I know this post has nothing to do with my regular blogging routine, but I wanted to take a minute and give an idea of what that firstgiving ''widget'' on the right near the bottom of my blog is. My friend Julia has decided to help raise money for a family adopting a child. First of all, Julia deserves a pat on the back as this is her second go at helping a family adopt a child. However she is having a harder time raising money for this one, as so many people she knows helped greatly with the first one, and budgets are tight. I figured putting a link to donate on my blog is the least I could do. The donation IS tax deductible if you were wondering. Please be sure to check it out if you get a chance! Thanks again for taking the time out of your busy day to read my blog! Sphere: Related Content

Wednesday, September 9, 2009

Most Active Stock Options Traded September 9, 2009

As of today Wednesday September 9, 2009 the top ten most active option contracts traded were:
  1. China Mobile (NYSE:CHL) September 45 Call Options
  2. Citigroup (NYSE:C) September 5 Call Options
  3. S&P 500 SPDR ETF (NYSE:SPY) September 103 Call Options
  4. PowerShares QQQ (NASDAQ:QQQQ) September 40 Put Options
  5. S&P 500 SPDR ETF September 100 Put Options
  6. Citigroup October 5 Call Options
  7. PowerShares QQQ January 40 Put Options
  8. S&P 500 SPDR ETF September 104 Call Options
  9. S&P 500 SPDR ETF September 102 Put Options
  10. PowerShares QQQ September 41 Put Options
The reason China Mobile traded so many option contracts today is likely because they will be spinning a dividend of 86 cents a share out September 1o, 2009. There is nothing too unusual from today's trading activity. Although Citigroup is still in the top contracts traded daily, it is down from the weeks prior of dominating with 5 or 6 different contracts in the top ten. Bank of America hasn't showed up either lately... Perhaps the financial sector is starting to get boring... Sphere: Related Content

ENCO Up Over 400% on New Business Contracts

Shares of Encorium Group Inc (ENCO) are demonstrating great strength as of now on 8.7 million of new business deals, including a Swine Flu (H1N1) vaccine trial win. If you're new to my blog, you've most likely never heard of this stock, but if you follow my blog, you may remember that on August 31 I wrote ENCO had a strong buying signal as it soared over 44% on a volume increase of over 2600% (original post here). I don't ever recommend or like buying penny stocks, unless they have these strong buy signals on them. The 21 cent stock as of yesterday's close has traded as high as $1.23 per share today.

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Still Time to Buy Black Gold? Using Option Spreads to Capture a Crude Move

As I have blogged about for quite a while, I believe the price of oil will continue to increase as the dollar gets weaker. As the dollar showed signs of weakness Tuesday, October light sweet crude oil contracts blew past the $70 per barrel mark to close at $71.10. As long as the dollar continues to get weaker, I will continue to hold and accumulate commodity as well as oil & gas service ETF's, particularly USO and UCO. From the Google chart below, we can see the correlation between the PowerShares DB US Dollar Index Bullish (UUP), and the United Stated Oil Fund (USO) since March 9, 2009.

Over the past 6 months, the two have a negative relationship; as the Bullish Dollar ETF became weaker (weakness in the dollar) the United States Oil Fund increased. Although the weak dollar story may not be the only reason oil has risen over the past 6 months, I believe it is enough to keep oil at these levels [if not $75-$80 a barrel] until late fall.

With fuel inventories near a 30 year high, what else could be keeping oil at these levels? According to Goldman Sachs, Crude Oil could strike $85 a barrel by the end of 2009 on increased demand in the coming months, but many have criticized this figure. However, I think $85 a barrel oil isn't unrealistic if the economy starts to show signs of recovery and inventories start to diminish. But mainly I see the dollar getting weaker in the months to come causing oil to move even higher. So on with the trade...

I was fortunate to sell my shares of the Proshares Ultra Crude Oil ETF (UCO) just above 13 a share on August 21 [August options expiration]. I was looking for a re-entry point, and as crude sold off on the morning of September 4, I decided to get long by purchasing the UCO September 11 strike Call Options with very limited risk. I was able to purchase the contracts for $50 a piece and planned on holding them until the September options expiration. However as crude traded higher Tuesday, I decided to turn half of my contracts into vertical call spreads, selling the UCO September 12 strike Call Options against them. I was able to receive all of my money back as I sold the contracts for $50 a piece. I looked at writing my remaining contracts out for the September 13 strike call option, but I decided to wait, as I am very bearish on the Dollar.

Bullish Trade to Ponder: Using a much less risky ETF, the United States Oil Fund (USO), I thought it may be worth looking at opening an option spread for the month of October. With the USO approaching 37 per share, I thought of opening what I call a half-in/half-out option spread. I call it this because in this case the spread is for 2 points, I would buy a call 1 point in the money and sell a call 1 point out of the money. This could be done if and when the USO crosses 37 a share. At that moment I would purchase the October 36 strike call and sell the October 38 strike call. At current prices (USO close at 36.94), this would cost $95 per option contract.

If crude oil continues to rise through October as I expect, and the USO is at or above 38 per share at October options expiration, this position would return 110%. The cost of the contract is $95 which means this spread is profitable as long as the USO is at or above 36.95 at October options expiration. I will be looking at opening this trade after crude inventories are released Wednesday, as levels of implied volatility may decrease causing the contracts to become a bit cheaper. If crude happens to sell off on the inventory release and the USO nears 36 a share, I am still bullish, and may look at opening spreads using the October 35 and 37 call options.

The ideas outlined above involve the use of stock options. To learn more about option spreads, risks, pricing, calculations, other strategies, and options in general click here.

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 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart).

Disclosure: Long USO, September 11 UCO Calls, Short September 12 UCO Calls

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Tuesday, September 8, 2009

Most Active Stock Options September 8, 2009

The top ten option contracts traded today September 8, 2009 were:
  1. Citigroup (NYSE:C) September 5 Call Option
  2. PowerShares QQQ (NASDAQ:QQQ) September 42 Call Option
  3. Citigroup October 5 Call Option
  4. S&P 500 SPDR ETF (NYSE:SPY) September 100 Put Option
  5. PowerShares QQQ October 39 Put Option
  6. S&P 500 SPDR ETFSeptember 102 Put Option
  7. PowerShares QQQ October 40 Put Option
  8. PowerShares QQQ September 40 Put Option
  9. PowerShares QQQ September 41 Call Option
  10. Citigroup October 4 Put Option
I was trading some Frontline (NYSE:FRO) options today, as they'll be spinning out a 25 cent dividend tomorrow morning. Sphere: Related Content

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