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Friday, October 23, 2009

Most Active Stock Options October 23, 2009 & Trading Activity

As of today the top ten most active stock option contracts were:
  1. PowerShares QQQ (NASDAQ:QQQQ) December 40 Put Options
  2. S&P 500 SPDR (NYSE:SPY) November 108 Put Options
  3. S&P 500 SPDR November 107 Put Options
  4. Microsoft (NASDAQ:MSFT) November 30 Call Options
  5. S&P 500 SPDR November 105 Put Options
  6. S&P 500 SPDR November 109 Call Options
  7. S&P 500 SPDR November 109 Put Options
  8. S&P 500 SPDR November 104 Put Options
  9. iShares Russell 2000 ETF (NYSE:IWM) November 58 Put Options
  10. Select Sector Consumer Staples SPDR (NYSE:XLP) December 27 Call Options
With the S&P 500 trading down over 1.2% today, I figured I would see more than just one bullish contract being among the most actives on the SPY. It looks as if the majority of options traded today are bearish on the overall market. I am a bit baffled we witnessed such weakness with two tech giants (Amazon and Microsoft) having very good days. Out of the gate this morning my order to buy back the Amazon 80 put options triggered paying a penny or $1 per option contract. I didn't close my 85 strike put options, because they were part of my ratio put spread, and make for extremely cheap protection now. I also opened a few more Call contracts for the Visa November 60's. I will look to trade out of those on strength in Visa, or perhaps write calls on the Visa 80 or 85, creating a call spread. I sold several 70 strike put options on Research in Motion (RIMM) for $525 per option contract. Into the bell I purchased some 43 strike put options on the Q's, which I will look to trade out of, or turn into a ratio or vertical put spread on weakness. Have a nice weekend. Sphere: Related Content

21 Breakout Stocks to Watch & Using Apple LEAP Options to Generate Income

Here is a list of 21 stocks which traded higher Thursday on unusually higher volume. I have added all 21 of these stocks to my watch list (and invite you to as well), but chose only one 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, Thursday's per share % increase, and Thursday'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
E C Tel Ltd ECTX 16.35% 12466.46%
Lucas Energy Inc LEI 24.10% 3259.18%
Chipotle Mexican Grill B CMGB 14.35% 1250.59%
Skechers U S A Inc Cl A SKX 14.34% 490.91%
F 5 Networks Inc FFIV 15.58% 469.94%
Alexion Pharmaceuticals ALXN 8.34% 430.12%
Terremark Worldwide Inc TMRK 6.72% 390.02%
New York Times Co Cl A NYT 22.51% 385.99%
J Crew Group Inc JCG 15.24% 339.98%
Oilsands Quest Inc BQI 6.29% 332.36%
P N C Financial Svcs Grp PNC 12.66% 328.76%
Edwards Lifesciences Cp EW 6.95% 307.47%
Goodrich Corporation GR 7.17% 275.39%
East West Bancorp Inc EWBC 19.14% 239.24%
Thomas & Betts Corp TNB 6.93% 237.30%
T N S Inc TNS 4.55% 198.84%
Lubrizol Corp LZ 7.26% 162.52%
Jefferies Group Inc JEF 2.07% 138.89%
Novellus Systems Inc NVLS 6.80% 94.77%
Apple Inc AAPL 0.14% 65.17%
Charming Shoppes Inc CHRS 8.01% 51.57%

I have chosen Apple (AAPL) to write about in this post. This is a bullish and income generating strategy I have been using on Apple.

Apple Option Trade: Apple beat the street expectations Monday and the stock has been in a steady up-tick ever since. The strategy is a Call spread using two different months (Diagonal call spread). Looking ahead to January 2011 I can purchase the Apple LEAP 100 strike call options for just under $109 a share or $10,900 per option contract - paying less than $4 in premium. The delta on this option is 96.1 (very close to 1 - which is as high as it can get), or for every $1 move in the underlying Apple share this contract moves the same direction by 96.1 cents a share $96 per option contract). I choose this over the stock, because it is like owning 100 shares of the stock for half the price, or using some leverage. Once I own this contract I can then choose to write a call option contract against it (preferable near term and out of the money). I am looking to write out the December 230 strike options against this particular contract. I would receive $240 for this contract. If Apple continues to rally and expires in December at or above $230 a share this position would return 11.2% in less than 2 months. If Apple does not reach this price and expires below 230 at December options expiration It can be written for a similar strike for any of the following months. Writing the options out monthly will lower the contract cost of the LEAP 100 Apple contract which was purchased. The December contract would lower the cost of the LEAP by roughly 2.2%. I will continue this strategy until I either get called out or the contract exercises (assuming Apple shares will be at or above 100 at January 2011 expiration). It is essential to know when to close or roll this position when using this strategy.

I have used this exact strategy with American Express (AXP), Bank of America (BAC), Caterpillar (CAT), General Electric (GE), Google (GOOG), Goldman Sachs (GS), MasterCard (MA), and Visa (V) in the past, and I have found it has given me much greater gains than holding the stock and writing calls on the underlying. To understand how to create spreads using options and when the best time to close the position is check out my Simplified Stock Option Trading E-Books.

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: AAPL December 200 Call Options, AAPL January 2011 100 Call Options, AXP, BAC, GOOG January 2011 300 Call Options, Visa November 60 Call Options, Short AAPL November 220 Call Options, AXP November 38 Call Options, AXP November 32 Put Options

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Thursday, October 22, 2009

Most Active Stock Options October 22, 2009 & Trading Activity

As of today the top ten option contracts traded were:
  1. S&P 500 SPDR (NYSE:SPY) November 102 Put Options
  2. SPDR S&P Homebuilders ETF (NYSE:XHB) November 16 Call Options
  3. S&P 500 SPDR November 108 Put Options
  4. MetroPCS Communications Inc (NYSE:PCS) May 7.50 Call Options
  5. S&P 500 SPDR November 105 Put Options
  6. Bank of America (NYSE:BAC) January 15 Call Options
  7. S&P 500 SPDR November 107 Put Options
  8. S&P 500 SPDR November 109 Put Options
  9. Financial Select Sector SPDR (NYSE:XLF) November 15 Put Options
  10. Citigroup (NYSE:) January 2011 10 Call Options
It looks as if the bearish activity still remains in the options as there has been many put contracts traded on the SPY in the last few days. Something extremely strange to see is the MetroPCS May 7.50 calls being among the most active. I would assume there may be some wild speculation of a takeover or breakthrough deal involving this company, but then again maybe not. There isn't a dividend being paid that I could find, but they do report earnings November 5, so it will be interesting to see how they report. It is nice to see some bullish activity rushing back into one of my largest holdings, Bank of America. Citigroup at 5 this January is a stretch, but give it another year and someone thinks it could double beyond that. Citigroup at 10 is almost unheard of, but then again who knows. That particular contract traded up 3 cents today or 25%! On the other hand there were some short-term bearish bets placed on the SPDR financial ETF (XLF). Today I closed my PowerShares QQQ (NASDAQ:QQQQ) put position, and Ebay 24 put options. I also opened a 1/4 ratio put spread on Amazon (AMZN) which turns out will be an awesome play. I will look to close my 80 strike put options at open (hopefully for less than a nickel) and will let my 85 puts ride as they'll be almost worthless at open tomorrow. I'll have just under 30 days to trade out of them, and will try to fetch something if Amazon sells off on profit taking in the next few weeks. I also sold some put options on America Express (AXP) for the November 32 strike, and sold the 39 strike call options against my shares. I closed my November 18 calls I had written Monday on Las Vegas Sands (LVS) today gaining over 35%. I did not get into my Potash (POT) position which I wanted to, but there is always next earnings season... Happy trading! Sphere: Related Content

Wednesday, October 21, 2009

Most Active Stock Options October 21, 2009 & Trading Activity

The top ten most active stock option contracts today were:
  1. Citigroup (NYSE:C) January 2011 5 Call Options
  2. Caterpillar (NYSE:CAT) November 37 Call Options
  3. S&P 500 SPDR (NYSE:SPY) November 107 Put Options
  4. Sun Microsystems (NASDAQ:JAVA) January 6 Put Options
  5. S&P 500 SPDR November 100 Put Options
  6. S&P 500 SPDR November 108 Put Options
  7. Caterpillar November 40 Call Options
  8. Apple (NASDAQ:AAPL) November 210 Call Options
  9. Volatility Index (CBOE VIX) November 22.50 Put Options
  10. S&P 500 SPDR November 109 Put Options
Caterpillar will be spinning a dividend out tomorrow which is likely the reason for the activity. The activity yesterday was a bit more bearish than today's, however we had a big opportunity going into close to cover some put positions for quick profits if opened this morning. I sold some Apple November 220 strike call options against my December 200 strike call contracts for 61% of the cost I purchased the 200's for. I will look to purchase them back on weakness in Apple stock tomorrow. I also sold some 15 and 16 strike Put options on Corning (GLW), and opened a 2/1 ratio put spread for the 24/22 strikes on Ebay (EBAY) today. It looks as if the Ebay is trading below 23 a share in after hours even with a beat in EPS. I will look to close my 24 puts and corresponding 22 puts on weakness in Ebay tomorrow. I will leave the remaining 22 put contracts to develop into a possible long position. Happy trading! Sphere: Related Content

22 More Earnings Season Option Strategies

In my blog post Monday I listed a few stocks which I would be willing to go long by selling the puts right before the stock reported earnings. If you missed it you can view the details here. As indicated I took positions on Apple (AAPL), Caterpillar (CAT), Texas Instruments (TXN), SanDisk (SNDK), Walter Energy (WLT), and Yahoo! (YHOO). The first three have been closed for quick profits (excluding the Apple calls), and I will look to close my positions on the latter three Wednesday Morning. In this post, I will lay out some trades for Thursday, Friday, and Monday (October: 22, 23, and 26).

To reiterate my previous blog post:

In this post, I will outline an option strategy that I use particularly during earnings season. This will put money in my pocket up front, give me a chance to purchase the stock for less than it's trading for now, and also give me gains if the stock moves even higher. I must note that this strategy could lose money if the stock moves much lower after results and you get the stock PUT to you at expiration (or in the rare case of an early exercise). 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 some of the stocks I'm willing to go long (for reasons not discussed in this post), which will be reporting earnings in the three days mentioned above. To understand the table below read the example used with Baidu (BIDU).

After results from Google (GOOG) and Yahoo I am bullish on Baidu as well. With
Baidu reporting after the bell Monday, it may be a great day to sell put options as implied volatility will likely soar before the earnings release. If you choose to open this position Friday versus Monday, I would recommend selling the put early-mid trading day, and purchasing the higher strike call within minutes of market close (as implied volatility will fall due to the weekend causing the options to be priced slightly cheaper). For example, let's say I would be willing to purchase Baidu stock at 7% less than its current share price. I would look to sell the November 360 strike Put options, and with the money received would look to purchase November 450 strike call options. Opening this position would put $240 in my portfolio. If Baidu expires between 360 and 450 a share at November expiration, this position would return $240. However, if Baidu can get and close above 450 at November options expiration, this position has the potential to return even more. The break-even for this position is Baidu at 357.60 a share at expiration; anything less would result in an unrealized loss on 100 shares of Baidu stock. I would also look to purchase call options on the December 470 (instead of the November 450), as they have more time value and do not have the same high levels of the implied volatility factored into the option premiums.

Note that the column labeled Put is the November Put Option I am looking to sell, the column labeled Call is the November Call Option I am looking to purchase with the premium received from selling the Put, and Net is the Net amount of cash I would receive (based on data as of market close Friday October 16, 2009). Also note it may be a good idea to choose a higher strike December dated option contract as stated in the Baidu example above.

Company Ticker Put Call Net
THURSDAY



3M MMM 75 80 $130
Amazon AMZN 85 110 $70
American Express AXP 32 39 $15
AT&T T 25 27 $5
Celgene Corporation CELG 48 65 $15
Chipotle Mexican Grill CMG 80 100 $30
Deckers Outdoor DECK 80 105 $75
Dow Chemical DOW 24 30 $15
Juniper Networks JNPR 25 31 $15
McDonalds MCD 55 62.5 $5
Merck MRK 32 36 $20
Potash Corp POT 90 120 $35
Terra Industries TRA 33 39 $10
United Parcel Service UPS 55 60 $25
FRIDAY



Honeywell International HON 35 40 $5
Microsoft MSFT 25 28 $14
Schlumberger SLB 65 75 $60
MONDAY



Annaly Capital Management NLY 17 18 $10
Baidu BIDU 360 470 $240
Corning Incorporated GLW 15 16 $5
Verizon Communication VZ
28
30
17







This is a bullish strategy and should not be considered if you think the stock will sell off after earnings. However if you feel you've missed the stock and think it could move sideways or up after the report, this strategy could yield a nice gain.

The list above are stocks which I wouldn't mind holding in my portfolio if they get PUT to me 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.

I use this strategy to open long positions when the market has rallied as much as it has. This strategy will allow me to purchase stocks for less, as well as provide a return without the stock if the market continues to rally. 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 AAPL December 200 Call Options, AXP, SNDK December 25 Call Options, YHOO December 20 Call Options, Short AXP November 33 Put Options, SNDK November 20 Put Options, WLT November 60 Put Options, YHOO November 16 Put Options

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Tuesday, October 20, 2009

Most Active Stock Options October 20, 2009 & Trading Activity

As of today the top ten option contracts traded were:
  1. S&P 500 SPDR (NYSE:SPY) March 85 Put Options
  2. Citigroup (NYSE:C) January 2011 5 Call Options
  3. S&P 500 SPDR December 82 Put Options
  4. S&P 500 SPDR December 95 Put Options
  5. S&P 500 SPDR March 100 Put Options
  6. Procter & Gamble (NYSE:PG) January 45 Call Options
  7. Consumer Staples Select Sector SPDR (NYSE:XLP) January 27 Call Options
  8. Citigroup November 5 Call Options
  9. S&P 500 SPDR January 107 Put Options
  10. S&P 500 SPDR November 107 Put Options
Judging by today's options activity it looks as if many option traders have turned quite bearish going into the next 6 months. We see many Deep Out Of the Money (DOOM) put options being traded for the S&P ETF, and a bullish bet being taken on the consumer staples ETF. At market open I closed all of the put options sold yesterday (CAT and TXN) including the 180 strike put options on Apple. I then looked ahead to after hours earnings reports and sold puts on Yahoo (YHOO), SanDisk (SNDK), and Walter Energy (WLT). All three companies look to be trading higher in after hours. I will look to take quick profits tomorrow and close all three positions. One stock on my radar tomorrow is Corning Inc. (GLW). I am looking to get between 55 and 65 per option contract for the November 15 put options. Happy trading! Sphere: Related Content

Monday, October 19, 2009

Dpression Unfolds Video

I made some changes to my original video and re-uploaded it to Youtube over the weekend. It is better quality and I really wanted the video to have the original track: Gimme Shelter by The Rolling Stones. Youtube hasn't disabled the sound yet (knock on wood) so watch it while you can and let me know what you think.




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Most Active Stock Options October 19, 2009

As of today the top ten most active option contracts traded were:
  1. Financial Select Sector SPDR (NYSE:XLF) November 15 Put Options
  2. Financial Select Sector SPDR November 16 Call Options
  3. Pfizer (NYSE:PFE) December 19 Call Options
  4. PowerShares QQQ (NASDAQ:QQQQ) November 42 Put Options
  5. Citigroup (NYSE:C) November 5 Call Options
  6. Pfizer December 18 Call Options
  7. S&P 500 SPDR (NYSE:SPY) November 107 Put Options
  8. S&P 500 SPDR November 110 Call Options
  9. S&P 500 SPDR November 108 Put Options
  10. Pfizer January 20 Call Options
There seems to be a lot of speculation rushing into Pfizer before they report earnings tomorrow. According to today's option activity it looks like some bullish activity in Pfizer is expected. If you checked out today's option activity in Apple (AAPL) you would have noticed way more calls were traded than puts and the options traders had it right, with a total, what I call, WOWZER quarter from Apple. The gross margins seemed to be a little lighter than expected, but everything else was great! If you read my blog post from this morning, you may have been able to check out my Apple earnings strategy. If not check it out below. I am very happy I opened this position, and think Apple has a shot at trading higher than the after-hours high (roughly 205 a share) with the help of other good earnings reports tomorrow morning. I also sold some 21 strike put options on Texas Instruments (TXN) which I plan on closing tomorrow on implied volatility collapse, and sold 52.50 and 55 strike Caterpillar (CAT) puts which I will also look to close on implied volatility collapse after CAT reports earnings. Sphere: Related Content

Earnings Season Option Strategy: Sell the Put Buy the Call

Do you feel that you've missed out on a stock that has moved up greatly in this market? With earnings season upon us once again, it makes for a great time to be selling put options due to high implied volatility. In this article, I will outline an option strategy that I use particularly during earnings season. This will put money in my pocket up front, give me a chance to purchase the stock for less than it's trading for now, and also give me gains if the stock moves even higher. I must note that this strategy could lose money if the stock moves much lower after results and you get the stock PUT to you at expiration (or in the rare case of an early exercise). 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 some of the stocks I'm willing to go long (for reasons not discussed in this post), which will be reporting earnings this week. To understand the table below read the example used with Apple (AAPL) below.

With Apple reporting after the bell Monday, it may be a great day to sell put options as implied volatility will likely soar before the earnings release. For example, let's say I would be willing to purchase Apple stock at 5% less than its current share price, I would look to sell the November 180 strike Put options (roughly 7% lower with premium received), and with the money received would look to purchase November 200 strike call options. Opening this position would put $100 in my portfolio. If Apple expires between 180 and 200 a share at November expiration this position would return $100. However if Apple can get and close above 200 at November options expiration, this position has the potential to return even more. The break even for this position is Apple at 179 a share at expiration, anything less would result in an unrealized loss on 100 shares of Apple stock. The December contracts are not yet open (they will be as of market open), but I will likely choose to purchase call options on the December 210 (instead of the November 200), as they have more time value and do not have the same high levels of the implied volatility factored into the option premiums.

Note that the column labeled Put is the November Put Option I am looking to sell, the column labeled Call is the November Call Option I am looking to purchase with the premium received from selling the Put, and Net is the Net amount of cash I would receive (based on data as of market close Friday October 16, 2009). Also note it may be a good idea to choose a higher strike December dated option contract as stated in the Apple example above.

Company Ticker Put Call Net
MONDAY



Apple Inc. AAPL 180 200 $100
Texas Instruments Inc. TXN 21 25 $14
TUESDAY



BlackRock, Inc. BLK 210 240 $30
Caterpillar Inc. CAT 50 60 $34
The Coca-Cola Company KO 52.5 57.5 $15
E.I. du Pont de Nemours & Company DD 32 36 $25
Gilead Sciences, Inc. GILD 44 49 $5
Jefferies Group, Inc. JEF 25 35 $5
Pfizer Inc. PFE 17 19 $20
SanDisk Corporation SNDK 20 23 $26
State Street Corporation STT 50 60 $110
The Bank of New York Mellon Corporation BK 25 30 $25
United Technologies Corporation UTX 60 70 $35
Walter Energy, Inc. WLT 60 70 $55
Yahoo! Inc. YHOO 16 18 $8
WEDNESDAY



Amgen, Inc. AMGN 57.5 65 $15
The Boeing Company BA 49 60 $70
eBay Inc. EBAY 24 26 $36
Eli Lilly & Co. LLY 33 36 $30
Southern Copper Corporation PCU 30 40 $30

For the companies reporting earnings Thursday and Friday I will post an update to this article Wednesday. This is a bullish strategy and should not be considered if you think the stock will sell off after earnings. However if you feel you've missed the stock and think it could move sideways or up after they report, this strategy could yield a nice return.

To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here.

The list above are stocks which I wouldn't mind holding in my portfolio if they get PUT to me 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.

I use this strategy to open long positions when the market has rallied as much as it has. This strategy will allow me to purchase stocks for less, as well as provide a return without the stock if the market continues to rally. 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 AAPL November 200 Call Options, Short AAPL November 180 Put Options

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Sunday, October 18, 2009

Sunday Knowledge: Be Ready for the Option Symbols to Change

It has been announced that the option symbols will change soon. From what I understand the exact date is February 12, 2010. First, I believe this change will eventually lead to a more liquid market as the symbols will be easier to understand for the average investor. Why they didn't make this change a long time ago, I'll never understand, but it is soon to take effect. I figured I owed it to my many readers on OptionMaestro.com, so hope it helps!


Highlights:
  • More detail in new symbol will be a bit longer but more descriptive
  • The new option symbol will always include the companies common stock Ticker symbol
  • The new option symbol will include the expiration date
  • The new option symbol will include the strike price
  • The new option symbol will include the type of option (call or put)
Example:

For example let's assume we want to purchase November $200 strike call options on Apple (AAPL). The current ticker may look like APVKT (under old symbology K is code for November call, and T is code for the 200 strike (also code for 100, 300, and 400 strikes). When the symbol change takes place the new option symbol will look like:

AAPLNOV212009200CALL

Breakdown of new symbol is fairly easy once familiar with it.
AAPL---NOV212009---200---CALL
Ticker---Expiration---Strike---Type

I have not heard too much about this change, and it will certainly be confusing for those who aren't expecting this change. Being that option volumes have surged over the past 5 years (see chart here), I figured this change would have been talked about a bit more than it has been. Hope this gives you some kind of heads up before the day it changes.

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