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Daily Stock Market Equity and Options Trading Commentary

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Saturday, November 14, 2009

Most Active Stock Options November 13, 2009

As of today the top ten most active stock options traded were:
  1. Chevron (CVX) November 75 Call Options
  2. Chevron December 70 Call Options
  3. S&P 500 SPDR (SPY) December 100 Put Options
  4. Aflac (AFL) November 35 Call Options
  5. S&P 500 SPDR June 94 Put Options
  6. S&P 500 SPDR November 110 Call Options
  7. S&P 500 SPDR November 110 Put Options
  8. Volatility Index (VIX) November 25 Put Options
  9. Chevron January 65 Call Options
  10. Aflac November 40 Call Options
Both Aflac and Chevron will be spinning dividends out Monday which is most likely the reason for them trading among the most active option contracts today. Judging on today's activity I would say there is some bullish bet going into the November options expiration, but as we've many times in the past few months, there seems to be bearish betting already for the forward month (December). Sphere: Related Content

Friday, November 13, 2009

Stock Market & Friday the 13th

A while back I posted about Friday the 13th and if it was good luck or bad luck for the market. Today being Friday the 13th I figured I'd let all of my new readers know. Check it out here. Sphere: Related Content

Breakout Stocks on BIG Volume November 12, 2009 & NTY Detailed Option Trade

Here is a list of stocks which traded higher Thursday November 12, 2009 on unusually higher volume. I will keep an eye on these stocks Friday 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. 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
Netlist Inc NLST 54.48% 4517.82%
Playboy Enterprises Cl B PLA 42.31% 1173.39%
Sorl Auto Parts Inc SORL 12.72% 748.70%
China Automotive Systems CAAS 11.15% 701.49%
Kandi Technologies Corp KNDI 22.49% 617.31%
Fuwei Films Holdings Co FFHL 19.63% 578.57%
Elong Inc Ads LONG 19.89% 449.47%
A D A M Inc ADAM 14.83% 370.17%
Aegean Marine Petroleum ANW 3.81% 310.21%
Cerus Corp CERS 21.72% 300.55%
Calavo Growers Inc CVGW 5.79% 273.64%
Scolr Pharma Inc DDD 18.37% 184.64%
Alliant Techsystems Inc ATK 3.33% 181.75%
Oplink Communications OPLK 3.55% 168.48%
Private Media Group Ltd PRVT 10.00% 163.20%
N B T Y Inc NTY 3.07% 152.67%
Mesa Royalty Tr Ubi MTR 3.43% 147.83%
American Dairy Inc ADY 4.88% 80.53%
Catalyst Health Sltns CHSI 1.92% 64.05%
Sirius X M Radio Inc SIRI 4.59% 44.54%
Abovenet Inc ABVT 1.09% 20.40%

I decided to write about a stock which I have been watching lately. I started watching this stock when I first started noticing many of my friends taking the many nutritional supplements they take before working out. The stock I will be writing an option strategy about is N B T Y Inc (NTY). 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).

N B T Y Option Trade: As we can see from the chart above NTY had a huge move down on big volume when it reported earnings, however it fought back to finish the day lower by less than 1.3%. Thursday the stock traded higher amongst a rather negative market on no major news. Looking at the chart above we can see a bullish triangle pattern has emerged, however it also looks as if a double top has formed, which is key to note. This option strategy I am about to write should be considered if and when NTY clears the 41.50 a share price, which would take out that bearish double top formation. If this stock continues higher and clears 41.50 I wouldn't mind getting behind this stock.

If and when the stock clears 41.50 I would look to open a Vertical Call Spreads on this stock. This will give me leverage on the stock, as well as limit my downside risk. Although I would become a buyer when the stock is trading at almost a dollar higher, I will write about this trade as if I were to open it at close of Thursday. This is a very easy trade that involves one expiration month and two separate option contracts. I would purchase December in-the-money 40 strike call options and sell December 45 strike call options against them (1 for 1). The theoretical price for this spread as of close Thursday is roughly $170 per option spread. However if the stock breaks $41.50 very soon, both call contracts will move higher causing the spread to be slightly more expensive (about $40 per spread based on current delta's and time value).

Profit and Loss: Let's say I opened just one spread. In the worst possible scenario, this strategy would lose a maximum of $170 per option spread. Now let's assume the stock continues to rally and closes at December option expiration at or above $45, this position would return maximum profitability, $330 per option spread or 194%. It is worth noting the break even point for this strategy, it would be at $41.70 per share of NTY, therefore anything above this level in the underlying would result in a profitable option trade.

This is a bullish strategy and should not be considered if you think the stock will sell off in the near future. However if you feel you've missed the stock and think it could move higher in the near future, this strategy 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 SIRI

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Thursday, November 12, 2009

Breakout Stocks on BIG Volume November 11, 2009 & SNIC Detailed Option Trade

Here is a list of stocks which traded higher Wednesday November 11, 2009 on unusually higher volume. I will keep an eye on these stocks Thursday 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. 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
Sonic Solutions SNIC 17.81% 718.43%
Iesi-Bfc Ltd BIN 2.93% 673.57%
China Yuchai Intl Ltd CYD 9.86% 625.51%
Toll Brothers Inc TOL 16.42% 552.70%
Diana Shipping Inc DSX 10.70% 248.62%
Aixtron A G Ads AIXG 9.81% 234.11%
Entremed Inc ENMD 25.24% 164.53%
Smithfield Foods Inc SFD 9.53% 136.78%
Inverness Med Innovatns IMA 1.97% 66.36%
American Dairy Inc ADY 5.49% 54.62%
Asiainfo Holdings Inc ASIA 2.32% 49.32%
Comp De Bebidas Adr ABV 0.86% 44.92%
Greenlight Capital Re GLRE 3.00% 43.69%
Dollar Thrifty Automotve DTG 3.59% 16.58%

I really like ASIA, but I already outlined an option strategy in Monday's breakout report (see it here). I decided to detail an option strategy using Sonic Solutions (SNIC) for this article. 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).

Sonic Solutions Option Trade: As we can see from the 30 day (30 minute) chart this stock has been on a tear over the past week. We can also see it seems that the stock struggled with breaking up through $6, and when it did it traded higher for a few days but on low volume until it sold off with the rest of the stock market. When it broke below $6, it fell off a cliff, and it touched just below $4.70 a share. However that sell off was on light volume as well (each volume bar on the graph is a 30 minute interval over the past 30 days). Some bullish news was released on November 3, 2009 which sent shares gapping higher on a big volume spike, and we can see earnings also sent shares higher on a huge surge in volume (earnings indicated by green telephone on chart). Nothing that I could find was released on SNIC Wednesday, but it continued to gain strength throughout the trading day on MASSIVE volume, especially from 2:30 - 3:00 PM. It set a new 52-week high on this surge in volume and it closed the day near it.

One strategy I'm looking to use on this stock is the Vertical Call Option Spread. This will give me leverage on the stock, limit my downside risk, and return as much as 92%. I don't think the $10 range is out of the question, looking ahead to December. SNIC has almost doubled in the past 2 weeks so it wouldn't hurt to wait for some kind of profit taking to jump in these shares. I would like to get into this position if and when the stock trades near $8.00 - $8.50, however I will write about this trade as if I were to open it at close of Wednesday. This is a fairly simple trade that involves one expiration month and two separate option contracts. I would purchase December 7.50 strike call options and sell December 10 strike call options against them (1 for 1). The theoretical price for this spread is roughly $130 per option spread.

Profit and Loss: Let's say I opened just one spread. In the worst possible scenario, this strategy would lose a maximum of $130 per option spread. Now let's assume the stock moves sideways over the next 37 days and closes exactly at Wednesday's closing price which was $9.13, this strategy would return $33 per spread or 25.4% at expiration. Now let's assume the stock continues to rally and closes at December option expiration at or above $10, this position would return maximum profitability, $120 per option spread or 92.3%. It is worth noting the break even point for this strategy, it would be at $8.80 per share of SNIC. The stock is currently 33 cents above the break even point so a sideways move as stated above would be profitable, but a move higher of 87 cents in the underlying would return maximum profitability.

This is a bullish strategy and should not be considered if you think the stock will sell off in the near future. However if you feel you've missed the stock and think it could move higher in the near future, this strategy 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: No Positions

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Wednesday, November 11, 2009

Most Active Stock Options November 11, 2009 & Trading Activity

As of today the top ten most active stock option contracts traded were:
  1. UPS (UPS) November 55 Call Options
  2. UPS January 45 Call Options
  3. PowerShares QQQ (QQQQ) January 38 Put Options
  4. Volatility Index (VIX) December 20 Put Options
  5. S&P 500 SPDR (SPY) November 110 Call Options
  6. Volatility Index December 18 Put Options
  7. Bank of America (BAC) November 17.50 Call Options
  8. Plum Creek Timber (PCL) November 30 Call Options
  9. S&P 500 SPDR November 110 Put Options
  10. S&P 500 SPDR November 108 Call Options
There isn't too much unusual activity today as the UPS and Plum Creek activity is due to dividends being spun out of the shares tomorrow. There was some very bearish betting going on for the December Volatility Index put options today, which is bullish on the overall market. Today I took advantage of the nice move higher on Google (GOOG) and Apple (AAPL) in the A.M. to write covered calls before purchasing them back for a nice profit near close. I also wrote December 24 strike call options on the PowerShares DB US Dollar Index Bullish ETF (UUP) for $15 per option contract or half the cost of my long December 23 call contracts. I opened a tiny hedge position by purchasing some S&P 500 SPDR (SPY) November 108 put options. I may not post most actives Thursday and Friday as I will be in Detroit, MI. Sphere: Related Content

Breakout Stocks on BIG Volume November 10, 2009 & HMIN Detailed Option Trade

Here is a list of stocks which traded higher Tuesday November 10, 2009 on unusually higher volume. 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. 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
Priceline.Com Inc PCLN 17.55% 785.10%
Home Inns & Hotels Mgt HMIN 10.46% 553.23%
Fossil Inc FOSL 9.03% 295.15%
M & F Worldwide Corp MFW 4.07% 194.46%
Fuqi International Inc FUQI 3.23% 147.37%
Tanzanian Royalty Explrn TRE 14.01% 140.10%
Wellcare Health Plans WCG 4.17% 103.26%
Steven Madden Limited SHOO 1.80% 83.43%
Green Mtn Coffee Roastrs GMCR 3.50% 64.94%
Comp De Bebidas Adr ABV 0.94% 63.33%
Incyte Corporation INCY 3.54% 57.19%
Deer Consumer Products DEER 3.89% 55.93%
Netflix Inc NFLX 2.10% 39.25%
Mead Johnsn Nutritn Cl A MJN 3.46% 33.07%
Stepan Co SCL 1.43% 24.30%
W M S Industries Inc WMS 1.39% 20.35%
C N A Financial Corp CNA 2.34% 18.12%

This list is 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 Home Inns & Hotels Management Inc (HMIN). This stock exploded to the upside Tuesday after a blockbuster earnings release reported after the bell Monday. This stock closed 7 cents below its high for the day (also 52-week high) which is a good sign. With the help of the market 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)
Home Inns & Hotels Option Play: As we can see from the 20 day (30 minute) chart above, this stock gapped higher and broke through resistance on huge volume Tuesday, therefore I don't mind getting behind the stock, at least until a bearish pattern emerges and a downtrend is confirmed in this stock. Earnings for this stock are out of the way, as indicated by the dollar sign and phone on the chart. Earnings being out of the way not only takes out the risk of having the stock report poorly and sell off, but also prices the options quite a bit cheaper in terms of implied volatility.

I believe this stock has a shot at 40 a share near term so I will write about a trade that will give me unlimited upside potential with limited downside risk. This option trade will involve 3 December option contracts. First I would look to sell vertical put spreads by selling in-the-money December 40 put option contracts and buying an equal number of December 35 strike put option contracts against them. Opening this spread would put $290 cash in my portfolio and limit my downside risk to $210 per option spread. This would be a good place to stop if one thought this stock would trade higher but wouldn't go too much beyond $40 a share by December options expiration. However I believe this stock has the potential of trading at least to $40 a share in the near term, so I would also purchase the December 40 strike call option with the money received. As of close Tuesday, this would cost me roughly $120 per option contract so the cash in my portfolio from opening this spread would be down to $170.

Profit and Loss: For simplicity let's assume I opened just one contract of each. If the worst possible scenario happened for this stock, this strategy would lose a maximum of $330. Now let's assume the stock trades sideways from Tuesday's close, this strategy could be closed for a loss of $197 at December options expiration. However let's assume this stock does trade higher and by 20% a share by December options expiration, this strategy would yield an additional $360 at expiration on top of the $170 cash received a return of 106%. I wouldn't recommend waiting for the expiration to close this position. The December option contracts have over 35 days left until they expire, so if and when HMIN experiences a pop or trades near 40 with some time value left in the options, I would look to take profits on my position or at least close the December 40 put contracts.

This is a very bullish strategy and should not be considered if you think the stock will sell off in the near future. However if you feel you've missed the stock and think it could move higher in the near future, this strategy 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 PCLN December 220 Call Options

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Tuesday, November 10, 2009

Most Active Stock Options November 10, 2009 & Trading Activity

As of today the top ten most active stock option contracts traded were:
  1. S&P 500 SPDR (SPY) November 110 Call Options
  2. Sprint (S) January 4 Call Options
  3. Sprint January 3 Put Options
  4. S&P 500 SPDR November 109 Put Options
  5. SPDR Homebuilders (XHB) December 16 Call Options
  6. S&P 500 SPDR November 109 Call Options
  7. Bank of America (BAC) November 16 Call Options
  8. S&P 500 SPDR November 108 Put Options
  9. S&P 500 SPDR November 110 Put Options
  10. S&P 500 SPDR November 108 Call Options
It looks like one strategist is betting that Sprint (S) will move in a big way by January expiration. This strangle is factoring in a 26% move lower from today's close or a 41% move higher just to break even. Other than that, there wasn't anything too unusual with today's most active options. I closed my put spreads on Priceline.com (PCLN) for a hefty one day gain and closed half of my December 220 call options around noon for an even bigger gain. As stated last night I noticed Rackspace (RAX) was selling off on their earnings release, however it had a very good day especially at market open. RAX finished the day higher by 48 cents a share to 18.80 but set a new 52-week high on huge volume to 19.67 near open before falling down to the upper 18's on much lighter volume. American Express has just been on fire lately, and I decided to take some profits today not by selling the stock but by selling the November 41 call options against my shares. I am assuming volume will be lighter tomorrow and we may see volatility sell off on many shares, which is why I will be looking to close several short option positions if profitable. Happy trading! Sphere: Related Content

Bullish Breakouts on BIG Volume: November 9, 2009 & ASIA Detailed Option Trade

Here is a list of stocks which traded higher Monday November 9, 2009 on unusually higher volume. I will keep an eye on these stocks Tuesday 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. 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
East West Bancorp Inc EWBC 55.03% 891.72%
Revlon Inc REV 37.20% 851.43%
Encore Capital Group Inc ECPG 6.61% 361.15%
Enzon Pharmaceuticals ENZN 9.47% 331.60%
Priceline.Com Inc PCLN 1.01% 219.70%
N B T Y Inc NTY 2.15% 134.52%
Greenlight Capital Re GLRE 3.00% 118.17%
M S C I Inc Cl A MXB 4.25% 105.02%
W M S Industries Inc WMS 5.41% 97.84%
H D F C Bank Ltd Adr HDB 8.35% 95.97%
Goldcorp Inc GG 6.67% 93.22%
T I M Participacoes Ads TSU 3.83% 90.59%
Asiainfo Holdings Inc ASIA 6.49% 87.81%
Blackboard Inc BBBB 1.23% 84.92%
Unisys Corp UIS 9.36% 79.29%
Microstrategy Inc Cl A MSTR 5.56% 74.14%
Home Inns & Htls Mgt Ads HMIN 2.94% 61.39%
Fuel Systems Solutns Inc FSYS 6.68% 60.89%
Nu Skin Enterprise Cl A NUS 3.04% 60.09%
Comp De Bebidas Adr ABV 3.58% 60.07%
Copa Holdings Sa CPA 4.92% 57.88%
Bucyrus International BUCY 6.85% 57.13%
Mastercard Inc Cl A MA 2.23% 44.03%

Out of the stocks listed above, I really like Asiainfo Holdings (ASIA) so I believe it will be worth describing a detailed option play I am interested in below. I am very bullish on Priceline.com (PCLN) but I already outlined an option play for that on Friday (read it here). 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.

Asiainfo Holdings Option Play: As we can see from the 20 day (30 minute) chart above there are two bullish patterns emerging; a clear uptrend since the beginning of November, but more importantly an Ascending Triangle which broke above the resistance Monday morning. Earnings for this stock are out of the way, as indicated by the dollar sign and phone on the chart. We can see earnings sent shares higher on a huge surge in volume. This stock is certainly one I can get behind looking at this chart, at least until a bearish pattern emerges and a downtrend is confirmed in this stock.

This stock set a new 52-week high Monday at 25.07. I could wait for the stock to pull back and buy it, but if that doesn't happen anytime soon I could miss out on this stock. I have decided to structure a 3 leg option trade using the December 22.50 and 25 put options and December 30 Call options. I am looking to sell vertical put spreads by selling the December 25 put options and purchasing December 22.50 put options against them. This would give me $105 cash per option spread and limit my risk to $145 per option spread. I would then look to finance December 30 call options (currently 27.50 calls are not available) with the cash received from selling the put spread (maybe even double or triple the amount of call contracts as put contracts sold if the December 27.50 calls are not available soon). Assuming the ratio of calls to puts is 1-1: this trade will be profitable as long as Asiainfo closes above $24.35 at December options expiration and gains will be more (technically unlimited) if Asiainfo can trade above $30 a share. Assuming the same ratio, if Asiainfo closes below 22.50 at December options expiration the losses are capped at $190 per spread.

This strategy will put money in my pocket to start and give me large upside with limited downside. If this stock moves sideways, I'll make money. If it sky rockets, I'll make more money. And if it happens to crash, my losses are limited to $190 per 3-leg position. However I see this stock trading higher by the December option expiration.

This is a bullish strategy and should not be considered if you think the stock will sell off in the near future. However if you feel you've missed the stock and think it could move sideways or up in the near future, this strategy 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 PCLN December 220 Call Options, PCLN November 155 Put Options, Short PCLN November 175 Put Options

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Monday, November 9, 2009

Most Active Stock Options November 9, 2009 & Trading Activity

As of today the top ten most active stock option contracts traded were:
  1. BP (BP) November 55 Call Options
  2. BP January 50 Call Options
  3. BP January 40 Call Options
  4. Eli Lilly (LLY) January 30 Call Options
  5. S&P 500 SPDR (SPY) November 107 Put Options
  6. BP January 45 Call Options
  7. Bank of America (BAC) November 16 Call Options
  8. S&P 500 SPDR November 110 Call Options
  9. S&P 500 SPDR November 109 Call Options
  10. Citigroup (C) December 5 Call Options
There was nothing too unusual in today's most active option activity. 5 of the top 6 were all dividend plays and there was nothing too bearish or bullish in the S&P 500 SPDR options. We have been seeing bullish activity in Bank of America options lately, and the traders have been right thus far. I would like to see the S&P 500 get and close above 1,100 to take out this emerging head and shoulder pattern (see chart below).

I do believe we are headed higher short term. I sold 2 to 1 ratio put spreads on Priceline.com (PCLN) today for the 175/155 strikes, and as of after hours it looks like it will be profitable. With the money received I purchased several December 220 call option contracts which will move higher tomorrow as well based on extended hours activity. I was not able to get into the Perfect World (PWRD) trade, but AOL finance must have the reporting date wrong as it still says they report after the bell today, however I noticed a headline today at OptionsXpress that Perfect World will be reporting on November 16. Happy trading! Sphere: Related Content

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