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Daily Stock Market Equity and Options Trading Commentary

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Saturday, October 17, 2009

Most Active Stock Options October 16, 2009

I am a little late to post the most active contracts as of Friday October 16, 2009 but here they are:
  1. S&P 500 SPDR (NYSE:SPY) October 109 Call Options
  2. S&P 500 SPDR October 109 Put Options
  3. iShares Russell 2000 Index (NYSE:IWM) October 61 Put Options
  4. S&P 500 SPDR October 108 Put Options
  5. Financial Select Sector SPDR (NYSE:XLF) November 16 Call Options
  6. Citigroup (NYSE:C) November 5 Call Options
  7. PowerShares QQQ (NASDAQ:QQQQ) November 43 Put Options
  8. General Electric (NYSE:GE) October 16 Call Options
  9. iShares Russell 2000 Index October 62 Put Options
  10. PowerShares QQQ November 42 Put Options
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Friday, October 16, 2009

25 Option Write Ideas for October Expiration Friday

In a previous OptionMaestro.com post, I outlined 25 stocks which I wouldn't mind going long at these levels. I wrote about getting long the stocks by using the buy-write option strategy. This is an updated post to that one, adjusting the strikes and prices accordingly for options expiration today. It is very important to write the shares out as early as possible as volatility rushes into the market in the morning, and not wait for it to start decreasing rapidly in the afternoon. It's not too late to get premium out of many of these stocks, and writing them for just a day decreases risk greatly. I will look to be purchasing some of the stocks mentioned below pre-market to write out at opening bell. As I've stated, I don't mind holding any of these stocks long which is why I'll be using this strategy tomorrow. If I get called out I won't mind because I'll still make money. Below is the list of stocks, the potential return if exercised, and protection if they do not get exercised. To learn more about the buy/write option strategy, risks, pricing, calculations, other strategies, and options in general, click here.

Note that higher beta securities return higher percentages due to their levels of implied volatility, and because they are riskier.

To understand the table, I will give a detailed example of STEC Inc. (STEC) below.

Sell the in-the-money STEC October 25 strike call option. The premium received from the call option would give a downside protection of 1.87%. If the stock is assigned at options expiration on October 17, 2009 the total return from this position would be 1.15% in 1 trading day.

Company Ticker Strike Potential Return % Protection %
Brocade BRCD 10 5.33 0.84
STEC STEC 25 1.15 1.87
Palm PALM 17 4.13 0.79
First Solar FSLR 155 2.38 0.92
MasterCard MA 230 2.24 0.18
Google GOOG 530 2.09 2.08
Las Vegas Sands LVS 17 2.07 1.65
Walter Energy WLT 65 2.07 1.09
Goldcorp GG 42.5 1.74 0.52
Bank of America BAC 18 1.71 2.27
Dendreon DNDN 30 1.50 1.20
Baidu BIDU 400 1.41 1.39
Rambus RMBS 19 1.37 1.47
Potash POT 95 1.28 0.42
Baxter BAX 55 1.28 0.37
Caterpillar CAT 55 1.11 0.69
Dow Chemical DOW 27 1.11 1.11
Goldman Sachs GS 190 1.07 0.34
A123 Systems AONE 22.5 1.04 3.47
Visa V 75 0.63 0.73
Amazon AMZN 95 0.62 1.68
Textron TXT 20 0.54 2.21
Apple AAPL 190 0.39 0.69
Buffalo Wild Wings BWLD 40 0.33 5.23
Charles Schwab SCHW 18 0.22 2.18

Individual stocks may not return as much as some of the double and triple leveraged ETF's. For example If I was bullish on the financial sector, I may not mind holding the Direxion Daily 3X Bull (FAS) (short-term of course as these shares don't make good investment vehicles), I would choose to purchase the stock pre-market and write out call options at open. If I was more bearish on the financials I may look at purchasing the Direxion Daily 3X Bear (FAZ) and write at-the-money calls out on it. For an example, we'll assume the FAS opens today at the close price Thursday. Therefore I would look to purchase shares at around 92 pre-market and write calls for the 92. As of Thursday's close this position would yield 2.00% and would protect my shares to the downside 1.96%. Be sure to check out other shares of Direxion ETF's for similar strategy such as: TNA, TZA, BGU, BGZ, ERX, ERY

To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here. As a shareholder of Bank of America, Brocade, Dendreon, Las Vegas Sands, Palm, and Visa I've written them out for a variety of strikes for the October options expiration, as the volatility of the underlying stock gives a very nice premium, even on out of the money options.

The list above are stocks which I wouldn't mind holding in my portfolio if they did not get exercised at expiration. 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.

This is an ideal strategy to open long positions when the market has rallied as much as it has. This strategy will give protection if the market sells off, as well as provide a return if the market continues to rally. If the stock is not assigned, this strategy is a great way to create additional income for your portfolio. 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 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 BAC, BRCD, DNDN, GOOG March 250 Call Options, LVS, PALM October 14 Call Options, V, Short BAC October 18 & 19 Call Options, BRCD 9 & 10 Call Options, DNDN October 28 & 29 Call Options, GOOG March 560 Call Options, LVS October 18 & 20 Call Options

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Thursday, October 15, 2009

Most Active Stock Options October 15, 2009

As of today the top ten stock options traded were:
  1. Vale S.A. (NYSE:VALE) January 15 Call Options
  2. Vale S.A. October 23 Call Options
  3. Vale S.A. October 22 Call Options
  4. Citigroup (NYSE:C) October 5 Call Options
  5. Vale S.A. October 25 Call Options
  6. Citigroup November 5 Call Options
  7. Vale S.A. October 24 Call Options
  8. Vale S.A. October 21 Call Options
  9. S&P 500 SPDR (NYSE:SPY) October 110 Call Options
  10. Citigroup December 5 Call Options
Once again all of the activity on my most actives screen is for call options. However it is very clouded by Vale (NYSE:VALE) as they will be spinning a dividend out tomorrow morning, and with just one day it makes the dividend play very attractive. I debated purchasing NOV Citigroup 5 Call options today on weakness, but really want to see how the financials react to Bank of America's numbers. I believe Bank of America (NYSE:BAC) will also beat, and I am looking for positive comments out of them on the Merrill Lynch acquisition. Google (NASDAQ:GOOG) trumped earnings and I am hoping for an even greater pop to bring this market even higher. Look for upgrades in the morning and I believe Google could be trading near 560 a share. It was an extremely impressive quarter and made me even more bullish on the tech giant! I wouldn't mind getting long Google at these levels and I am glad I am long. Google is on pace to open at a 52-week high tomorrow morning, and I believe it will. I think the stock trades up to 600 easily within the next 6 months. I may look at closing my March call spreads tomorrow (as blogged about here), just to open a longer dated higher strike vertical call spread. All out bullish on Google after that quarter! Happy expiration trading tomorrow! Sphere: Related Content

Wednesday, October 14, 2009

Most Active Stock Options October 14, 2009

Today the Dow crossed 10,000 as I assumed it had a very good chance of doing so in yesterday's afternoon blog post. The top ten most active stock option contracts traded today were:
  1. Citigroup (NYSE:C) October 5 Call Options
  2. Financial Select Sector SPDR (NYSE:XLF) November 16 Call Options
  3. Financial Select Sector SPDR October 16 Call Options
  4. Financial Select Sector SPDR October 15 Call Options
  5. PowerShares QQQ (NASDAQ:QQQQ) October 43 Call Options
  6. Citigroup November 5 Call Options
  7. S&P 500 SPDR (NYSE:SPY) October 110 Call Options
  8. S&P 500 SPDR October 108 Call Options
  9. Bank of America (NYSE:BAC) October 18 Call Options
  10. S&P 500 SPDR October 109 Call Options
It is very rare that all ten contracts I list are all call options. JP Morgan (NYSE:JPM) certainly set the tone and must be many turned even more bullish on financials as they surged and strategists looked ahead to the November expiration. I didn't trade too much today. I closed my Intel 19 put options for a penny a share at open, and waited for Google to pull back a bit before I purchased several October 550 strike call options to sell on increased levels of implied volatility tomorrow before earnings. I would like to see Google trade higher tomorrow and cross the 540 strike. I would look to close at least 75% of my open call contracts and write the remaining out for either the 560 or 570 strike, hoping to be profitable overall before earnings are even released. I believe Google will have a very good quarter and they should move higher in anticipation. I also closed my Bank of America 18 strike put options which were opened yesterday for near the highs of the contract and closed at the contract low today (realizing 74% in one day). Sphere: Related Content

25 High Yielding Buy-Writes for October Options Expiration

With the October options expiration approaching us in just 3 days, I thought I would outline some trade ideas on stocks I wouldn't mind going long on, that would return good percentages by Friday (as of market close Tuesday). When using the buy/write option strategy, it is important that you are willing to hold the security in case it is below the strike price at options expiration. I have put together a list of stocks which will return a nice percentage gain if they are above the strike price as of October options expiration, but will also protect (lower cost basis) to the downside in case the stock sells off slightly and expires below the strike price. The list below is a very tall one, and for your convenience I have ranked the securities in order from the largest potential % return to the least. To learn more about the buy/write option strategy, risks, pricing, calculations, other strategies, and options in general, click here.

Note that higher beta securities return higher percentages due to their levels of implied volatility, and because they are riskier.

To understand the table, I will give a detailed example of Bank of America (BAC) below. Also note Bank of America Reports earnings Thursday which will give even more implied volatility and a higher premium to the call options.

Sell the Bank of America October 18 strike call option. The premium received from the call option would give a downside protection of 2.47%. If the stock is assigned at options expiration on October 17, 2009 the total return from this position would be 3.54% in 3 trading days.

Company Ticker Strike Potential Return % Protection %
Brocade BRCD 10 6.95 1.58
STEC STEC 25 5.34 2.67
A123 Systems AONE 24 4.57 2.01
Rambus RMBS 19 4.27 1.51
Las Vegas Sands LVS 18 3.89 2.42
Bank of America BAC 18 3.54 2.47
Palm PALM 17 3.28 1.97
Google GOOG 530 3.18 2.44
Walter Energy WLT 60 2.92 2.26
Dendreon DNDN 29 2.92 2.22
Charles Schwab SCHW 19 2.48 2.37
First Solar FSLR 155 2.31 1.87
Dow Chemical DOW 26 2.20 1.93
Baidu BIDU 410 2.18 1.57
MasterCard MA 220 2.09 0.87
Goldman Sachs GS 185 1.65 2.84
Amazon AMZN 95 1.61 1.43
Textron TXT 19 1.57 2.35
Baxter BAX 57.5 1.47 1.82
Buffalo Wild Wings BWLD 40 1.45 1.74
Potash POT 90 1.44 1.53
Goldcorp GG 42.5 1.33 2.22
Visa V 75 1.31 0.87
Apple AAPL 190 1.08 1.09
Caterpillar CAT 52.5 1.06 1.52

To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here. As a shareholder of Bank of America, Brocade, Dendreon, Las Vegas Sands, Palm, and Visa I've written them out for a variety of strikes for the October options expiration, as the volatility of the underlying stock gives a very nice premium, even on out of the money options.

The list above are stocks which I wouldn't mind holding in my portfolio if they did not get exercised at expiration. 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.

This is an ideal strategy to open long positions when the market has rallied as much as it has. This strategy will give protection if the market sells off, as well as provide a return if the market continues to rally. If the stock is not assigned, this strategy is a great way to create additional income for your portfolio. 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 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 BAC, BRCD, DNDN, LVS, PALM, PALM October 14 Call Options, V, Short BAC October 18 & 19 Call Options, BRCD 9 & 10 Call Options, DNDN October 28 Call Options, LVS October 20 Call Options

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Tuesday, October 13, 2009

Most Active Stock Options October 13, 2009

The top ten most active stock options traded today were:
  1. Citigroup (NYSE:C) October 5 Call Options
  2. PowerShares QQQ (NASDAQ:QQQQ) October 43 Put Options
  3. Intel (NASDAQ:INTC) October 21 Call Options
  4. Teekay Corp. (NYSE:TK) January 2010 12.50 Call Options
  5. S&P 500 SPDR (NYSE:SPY) October 107 Put Options
  6. S&P 500 SPDR October 108 Put Options
  7. Financial Select Sector SPDR (NYSE:XLF) October 15 Put Options
  8. Accenture PLC (NYSE:ACN) October 35 Call Options
  9. Intel October 20 Call Options
  10. PowerShares QQQ October 43 Call Options
Both Accenture and Teekay are spinning out dividends tomorrow which explains the amount of options activity on these stocks today. It looks as if one of the most popular trades of the day was opening 20/21 vertical call spreads on Intel, which turns out it was the right move (as of after hours the stock has traded higher by as much as a dollar). I actually sold October 19 strike puts on Intel to fetch $12 per option contract to help finance the 21 strike call options I purchased for $28 per option contract, I then sold the October 22 strike call options against my Intel 21 calls for $11 per contract, making me net long $5 per contract (before commissions). Yes all of these legs (I traded 3 legs and 150 contracts total) and unlimited contracts for just $14.95 on OptionsHouse.com! I would really like to see Intel fill the spread by expiration returning 2000% on my position. I believe we will see the Dow trade over 10,000 tomorrow, which really means nothing as it is just a psychological level, but that's another 100+ point win for the bulls out there. Sphere: Related Content

Monday, October 12, 2009

Most Active Stock Options October 12, 2009

As of today Monday October 12, 2009 the top ten most active option contracts were:
  1. Financial Select Sector (NYSE:XLF) November 16 Call Options
  2. Citigroup (NYSE:C) October 5 Call Options
  3. Citigroup November 5 Call Options
  4. PowerShares QQQ (NASDAQ:QQQQ) October 42 Put Options
  5. Abbott Laboratories (NYSE:ABT) October 47 Call Options
  6. Intel (NASDAQ:INTC) October 22 Call Options
  7. S&P 500 SPDR (NYSE:SPY) October 108 Put Options
  8. S&P 500 SPDR October 107 Call Options
  9. Abbott Laboratories November 42.50 Call Options
  10. Intel October 20 Call Options
It looks as if someone is extremely bullish on the financial sector going into November. We can also see that some speculators may be betting on Intel to move higher, as it looks as if 20/22 vertical call spreads were opened today. I took part in purchasing the SPY 108 put options today, and will hopefully trade out of them on weakness tomorrow morning. I believe we may see the DOW get to 10,000 tomorrow but it must pass it and hold, otherwise I believe we will see a sell off going into the October expiration. Abbott labs trading among the most active options is most likely due to the dividend of 40 cents they will be spinning out tomorrow, but note they also report earnings Wednesday. I was selling puts on Las Vegas Sands Corp. (NYSE:LVS) today as I watched it reverse after a huge block of almost 15 million shares trade around 1:30 PM. When the stock began ticking up on up volume I began selling the October 17 strike put options (for $80 per contract) and completely closed the position within half an hour for a 62.5% gain (sold at $80, bought at $30). I will likely use the increase in implied volatility tomorrow to open a ratio put spread on Intel for the 20/19 or 21/19 depending on where the stock trades. Happy trading! Sphere: Related Content

Bullish Stocks to Watch: Week of October 12, 2009

Here is a list of 32 stocks which traded higher Friday on unusually higher volume. I have added all 32 of these stocks to my watch list (and invite you to as well), but chose only a couple to write about in detail in this post. 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, Friday's per share % increase, and Friday's 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
Metabasis Therapeutics MBRX 35.92% 2376.53%
Sunrise Senior Living SRZ 44.55% 1415.22%
Skillsoft Plc Adr SKIL 2.75% 843.43%
Hong Kong Highpower Tech HPJ 33.04% 804.58%
China Automotive Systems CAAS 16.20% 799.76%
Netsol Technologies Inc NTWK 20.79% 711.02%
Ultra Clean Holdings Inc UCTT 22.86% 609.70%
Nautilus Inc NLS 36.14% 518.98%
Dot Hill Systems Corp HILL 11.50% 381.62%
John Hancock Inc Secs Tr JHS 1.07% 339.01%
Eight By Eight Inc EGHT 9.09% 305.93%
M L P & Strategy Eq Fund MTP 4.21% 303.90%
Salem Communications A SALM 16.67% 301.91%
B B V A Banco Frances Sa BFR 7.70% 269.39%
Datalink Corporation DTLK 6.03% 269.03%
Mcclatchy Co Hldg Cl A MNI 19.62% 262.99%
Skystar Bio-Pharma Co SKBI 9.88% 216.45%
China Transinfo Tech CTFO 4.71% 208.92%
Span Amer Med Sys Inc SPAN 4.49% 200.00%
Calavo Growers Inc CVGW 9.21% 183.13%
Jamba Inc JMBA 10.81% 179.90%
R C M Technologies Inc RCMT 11.91% 175.18%
Navarre Corp NAVR 7.05% 174.73%
Semitool Inc SMTL 2.79% 165.05%
Cerner Corp CERN 3.84% 154.10%
Nortel Inversora Sa Adr NTL 9.68% 122.43%
Nu Skin Enterprise Cl A NUS 5.25% 120.09%
Phoenix Companies Inc PNX 8.48% 71.13%
Tessera Technologies Inc TSRA 3.79% 65.01%
Taleo Corporation Cl A TLEO 5.22% 59.84%
Baidu Inc Ads BIDU 3.49% 59.48%
Perfect World Cl B Ads PWRD 2.31% 37.25%

The two stocks which I will be writing about today are Baidu (NASDAQ:BIDU) and Perfect World (NASDAQ:PWRD).

Perfect World Option Trade: I believe Perfect World has a shot of getting back to 50 a share (as it hit on September 23, 2009), after it reports earnings on November 9. With just 5 days left until the October options expiration, I would look at selling put options to get some money to speculate with on Perfect World. Note that I don't mind holding this stock long which is why I am willing to sell put options. I would look to get $25 per option contract by selling the October 40 strike put options. I would then wait until November 5 or 6 to look at selling put options 10-15% lower to finance out of the money December call options. Note I would be looking to sell these put options 10-15% lower a few days before earnings on high levels of implied volatility. If I were to open this position today, I would look at selling the 40 or 35 strike put options for November, and purchase the 50 to 55 strike December call options with the money received. Note that closer to the earnings release the implied volatility should increase quite significantly, causing the put options 10-15% lower than the share price (at that time), to go for a bit more than today. This is an all out bullish strategy on Perfect World that will allow me to speculate for a bit less, however I am willing to own shares at the 35-40 per share price level. It may also be worth looking at opening Calendar call spreads to capture the volatility, and/or ratio put spreads to protect a bit more to the downside, because when dealing with a stock such as Perfect World (up 500% from 52-week low), we know it can decrease in share value just as fast as it increased.

Baidu Option Trade: With just over 1 week until Baidu reports earnings, I am looking at opening a November straddle the next time it approaches a strike price. It is currently closest to the 430 strike, so this is what I'll use in this example. The next time Baidu approaches the 430 a share mark during regular trading hours, I would look at opening a straddle for the November expiration. I would do this by purchasing both the November 430 Call and Put option. Baidu reports earnings after the bell on Monday October 19, so I would look to close this straddle by 3:30 PM Monday. The day of earnings always drives the implied volatility on the options higher, causing the options to be valued higher. The optimal case for this type of position would be if Baidu can trend one way or another after it crosses the strike. This would allow this position to be most profitable at close. The amount lost from this is limited to the decay of both legs of the option position by day of close. This is an option speculation play only. However, it wouldn't hurt you to track the position by keeping daily notes on how the position would pay off at the end of each day, from open until close (the purchase price at strike approach until the day of earnings).

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: No Positions

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