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

To get a better understanding of the option ideas expressed in this blog, buy my ebook today!

Friday, November 20, 2009

Volume Talks: Hot Stocks on Heavy Volume & Detailed Ratio Put Spread Option Trade

With the market selling off Thursday, there were several stocks that hit my radar which traded higher on abnormal volume. In this post, I will name 12 stocks which fought the trend Thursday November 19, 2009. I will be checking these stocks frequently 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. The second part of 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.

CompanyTickerPrice ChangeVolume Change
TTI Team Telecom International Ltd. (TTIL)49.15%14947.18%
Solarfun Power Holdings Co., Ltd. ADR (SOLF)5.09%582.96%
The Bon-Ton Stores, Inc. (BONT)18.13%574.24%
The DIRECTV Group, Inc. (DTV)1.48%449.64%
Donaldson Company, Inc. (DCI)7.89%348.78%
Trina Solar Limited ADR(TSL)6.04%295.09%
Suntech Power Holdings Co., Ltd. ADR(STP)5.96%253.52%
CNA Financial Corporation (CNA)3.43%139.40%
Canadian Solar Inc. (CSIQ)3.88%131.10%
NetApp Inc. (NTAP)4.09%114.49%
American Superconductor Corporation (AMSC)1.63%57.05%
Longtop Financial Technologies Limited (LFT)2.97%47.76%

There certainly seemed to be a trend among the solar stocks Thursday. As much as I like Suntech Power (STP), I will not be writing a detailed option strategy in this post, as I've already covered one in a previous post. The stock which I find most attractive from the list above is Canadian Solar (CSIQ), so I will outline an option play I would like to use on this stock. 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


Looking at the chart above, we can see a bullish ascending triangle pattern has emerged, however my gut is telling me solar is just a bit overheated (pun intended) and that a healthy consolidation may occur in the near term. I am expecting up to a 15% correction on shares of CSIQ near term, but I believe once this stock consolidates, it will trade much higher. I would become a buyer of this stock if it trades down to and holds above support levels of 19.50 - 20, near term. Therefore I would look to be selling Ratio Put Spreads on this stock for a net credit. I would structure this option trade using the December 21 and 19 strike put options. At current levels of option Delta a 2:1 ratio put spread would be optimal.

Canadian Solar Ratio Put Spread Option Trade:
As stated I am expecting a slight sell off and I would become a buyer of this stock roughly 10% below current share value, so the following trade is what I would look at doing. First I would look to purchase December 21 strike put options on CSIQ, and then I would choose to finance them by selling two December 19 strike put option contracts for every one December 21 strike put purchased. Using market data as of close Thursday, each ratio put spread would result in a net credit of $10 (receiving $10 cash).

Profit & Loss: If and when Canadian Solar trades down near support levels (assuming this position is opened), I will be monitoring the chart very closely to spot a potential reversal. If I am convinced of the reversal, I will likely choose to take profits in the long side of the trade (December 21 strike puts), and hold the remaining short put options, as they will be out of the money and if CSIQ indeed reversed, they should lose time value relatively quickly. The previous case is the optimal trade for this strategy, but even if CSIQ continues higher and all contracts expire worthless, this strategy would still be profitable by the amount of the credit received when opened. It is almost like a free trade, especially if I am willing to take shares of CSIQ into my portfolio. Now let's assume CSIQ sells off with no convincing reversal in the chart, I would choose to keep the entire position open. With all three contracts left open until expiration, this trade would be profitable as long as CSIQ is at or above 16.90 a share.
In the optimal case, the first part of this trade is bearish and the second part is bullish. This is a great way to create cash flow especially when wanting to own shares of a stock. If timed right and the opportunity approaches, this strategy could yield even more. The negative with this strategy is that it limits the upside. 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 STP

Bookmark and Share


Sphere: Related Content

30 High Yielding Option Write Ideas for November's Option Expiration Friday

In a previous OptionMaestro.com post, I outlined 30 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 during pre-market or near market open to write out within an hour of the 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 today. 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 downside 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 Option Maestro favorite Suntech Power (STP) below.

Sell the at-the-money STP November 16 strike call option. The premium received from the call option would give a downside protection of 1.56%. If the stock closes above 16 (it will get assigned) today the total return from this position would be 1.63% in just 6.5 trading hours.

I have ranked the stocks in the table below in order from greatest to least protection (note that most of these stocks with greater protection have less return, as they are deeper in the money or have less volatility than others listed). I have also calculated the group average return and protection which is the very bottom row of the table. The data in bold represents greater than the group average.

Company Ticker Strike Potential Return % Protection %
Ford F 8 0.23 8.59
Citigroup C 4 1.64 7.75
A123 Systems AONE 15 1.77 3.28
Rambus RMBS 18 0.65 2.56
Alcoa AA 13 0.45 2.12
Textron TXT 20 1.09 1.98
Goldman Sachs GS 170 0.20 1.83
First Solar FSLR 120 0.88 1.81
Suntech Power STP 16 1.63 1.56
Las Vegas Sands LVS 17 1.71 1.42
Dendreon DNDN 28 1.11 1.28
Dow Chemical DOW 28 0.93 1.21
Bank of America BAC 16 0.62 1.12
Brocade BRCD 8 0.62 1.12
Walter Energy WLT 70 1.55 1.05
American Express AXP 41 0.70 1.05
Visa V 80 0.67 0.90
Goldcorp GG 44 0.86 0.89
Apple AAPL 200 0.50 0.76
Google GOOG 570 0.16 0.68
Potash POT 115 2.27 0.65
MasterCard MA 230 0.56 0.60
Baidu BIDU 430 0.98 0.51
Amazon AMZN 130 1.22 0.43
Palm PALM 12.5 7.91 0.43
Baxter BAX 55 0.49 0.40
JP Morgan JPM 43 1.41 0.35
Research in Motion RIMM 60 2.28 0.31
Cisco CSCO 24 1.56 0.21
Caterpillar CAT 60 2.53 0.15
Group Average

1.31 1.57

From the table above I will be looking to pick up shares of Suntech Power (STP) for a one day option write. If these shares close below 16, I won't mind as I would like to add to my position anyhow. 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 76 pre-market and write calls for the 76. As of Thursday's close this position would yield 2.1% and would also protect my shares to the downside 2.1%. Be sure to check out other shares of Direxion ETF's for similar strategy such as: TNA, TZA, BGU, BGZ, ERX, ERY, and others.

To better understand options in general, including this strategy, these percentage calculations, and other option strategies please check out my Simplified Stock Option Trading E-Books. As a shareholder of Bank of America, Las Vegas Sands, Palm and Suntech Power, I've written them out for a variety of strikes for the November 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 AAPL December 200 Calls, AXP, BAC, GOOG January LEAP 300 Calls, LVS, PALM, STP, V November 60 Calls, Short AXP November 38 & 41 Calls, GOOG November 580 Calls, V November 80 Calls

Bookmark and Share
Sphere: Related Content

Thursday, November 19, 2009

Most Active Stock Options November 19, 2009 & Trading Activity

As of today the top ten most traded option contracts were:
  1. Johnson & Johnson (JNJ) January 55 Call Options
  2. Johnson & Johnson January 50 Call Options
  3. Johnson & Johnson November 60 Call Options
  4. S&P 500 SPDR (SPY) November 110 Call Options
  5. S&P 500 SPDR November 109 Put Options
  6. PowerShares QQQ (QQQQ) November 43 Put Options
  7. S&P 500 SPDR November 110 Put Options
  8. S&P 500 SPDR November 111 Call Options
  9. S&P 500 Index Options (SPX) December 1050 Put Options
  10. S&P 500 Index Options November 1050 Call Options
I left my Suntech (STP) put options on the table as both contracts sold before earnings yesterday could have been closed for a nickel a share (the November 14 and 15 put options). I don't believe Suntech (STP) will trade below 15 tomorrow which is the reason I didn't close the position. I actually fetched $10 per contract on my shares of STP for the November 17 call options which could have also been closed for a nickel, but again I don't believe we will STP trade above 17 tomorrow, and if we do I am happy to exit the trade. I am still bullish on STP as I think we could see it approach 20-22 a share in the near term if we continue to see oil rise on the back of a weak dollar. I sold put options on Dell (DELL) for the November 15 strike, and as of now with a huge sell off after they reported, I am down on my position. However I believe we could see Dell close near 15 as it may "pin" to that price because that is where the bulk of the open interest is for the November contracts. Tomorrow I expect to see a very volatile day as it is options expiration, and I will be trading Google (GOOG), and Apple (AAPL) as I believe they are set to pin near 570 and 200 a share. Happy trading! Sphere: Related Content

Volume Talks: Hot Stocks on Heavy Volume & Detailed Earnings Option Trade

In this post, I will name 25 stocks which traded higher Wednesday November 18, 2009 on unusually higher volume. As always, 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. The second part of 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
Chromcraft Revington Inc (CRC) 43.88% 1632.04%
Techwell Inc (TWLL) 15.54% 1212.05%
Compellent Technologies (CML) 12.26% 751.20%
China Green Agriculture (CGA) 26.75% 430.87%
Colgate Palmolive Co (CL) 3.66% 406.54%
Charles & Colvard Ltd (CTHR) 18.48% 316.83%
Excel Maritime Carriers (EXM) 14.29% 291.50%
Euroseas Ltd (ESEA) 12.30% 272.88%
N F J Div Int & Prem Fd (NFJ) 1.21% 194.09%
Navios Maritime Holdings (NM) 2.86% 169.05%
Trex Company Inc (TWP) 8.36% 166.98%
Deer Consumer Products (DEER) 6.77% 145.34%
Paragon Shipping Inc (PRGN) 4.44% 132.53%
Advanced Micro Devices (AMD) 10.57% 132.52%
A-Power Engy Generation (APWR) 2.14% 120.68%
M & F Worldwide Corp (MFW) 2.92% 106.60%
City Telecom Hk Ltd Adr (CTEL) 2.98% 89.29%
Virgin Mobile Usa Inc (VM) 8.03% 79.45%
Telekomunikasi Indo Ads (TLK) 1.55% 65.91%
Canadian Solar Inc (CSIQ) 2.54% 61.00%
D C P Midstream Partners (DPM) 2.31% 34.38%
Wimm Bill Dann Foods Adr (WBD) 7.25% 28.27%
Mercadolibre Inc (MELI) 1.47% 24.60%
Sirona Dental Systems (SIRO) 2.34% 19.87%
Cheesecake Factory Inc (CAKE) 4.12% 18.96%

The list above contains many stocks which I have seen appear multiple times while screening for these stocks. This list is also 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 Sirona Dental Systems (SIRO). With the help of the market, I believe this stock will continue to outperform. 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).

I would become a buyer of this stock if it can trade above 30.50 a share, and would like to see it continue trend past 31. However with earnings for this stock scheduled to be released December 4, 2009, I may wait and use a different method of playing this stock. I would structure an option trade that would capture the increased levels of implied volatility in the option contracts leading up to the earnings report.

Earnings Option Trade: Although the recent chart and a break above 31 would be bullish for the stock, it could all change after the earnings report. I would look at opening the following strategy to get cash up front, cap my losses, and still get unlimited gains. As earnings approach the options will factor in a bit more volatility, causing the premiums to be a bit overpriced, therefore I would look to be a seller of Vertical Put Spreads and a buyer of Out of the Money Call options. Although this stock reports earnings in just over two weeks, I will give this example using current market data.

I would first open the vertical put spreads by selling the December 30 strike put options and purchasing the December 25 strike put options against them (1 for 1). This would give me a credit of $115 per option spread (putting $115 into my portfolio), as well as limiting my downside risk to $3.85 a share (after taking into account the credit). I would then look to purchase out of the money calls with the cash received (1 call per option spread). If I were to purchase the December 35 strike call options, this would cost $20 (at the ask price) per option contract. The strategy now has unlimited upside potential and also limits the loss to $4.05 per share, even if the stock sells off significantly and closes below 25 a share at the December options expiration. The break even for this strategy is $29.05 a share, which is 3.9% lower than the current share price, so if the stock moves sideways after the earnings announcement this strategy will also be profitable.

Note that depending on the share price as earnings approach will determine the strikes used to structure this trade. One negative about this stock is that volume is light meaning it may be tough to fill option orders. I will likely wait until December 3 to open this position, as it will take Check Spellingadvantage of the increased option premium due to earnings the following day.

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. 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

Bookmark and Share
Sphere: Related Content

Wednesday, November 18, 2009

Most Active Stock Options November 18, 2009 & Trading Activity

The top ten most active option contracts traded today were:
  1. S&P 500 SPDR (SPY) November 111 Put Options
  2. S&P 500 SPDR November 111 Call Options
  3. PowerShares QQQ (QQQQ) November 44 Put Options
  4. S&P 500 SPDR November 110 Put Options
  5. S&P 500 SPDR November 110 Call Options
  6. Bank of America (BAC) November 16 Call Options
  7. Bristol Myers (BMY) December 30 Call Options
  8. Select Sector Financials SPDR (XLF) December 14 Put Options
  9. Bristol Myers December 30 Put Options
  10. PowerShares QQQ November 44 Call Options
It seems like the bearish betting outweighed the bullish betting today. It seems that someone is very bullish on Bank of America going into the options expiration this Friday. The November 16 calls are trading at a very slight premium to the actual stock, so someone is paying the premium to own the stock for these last 2 trading days. Looking at the open interest there seems to be the most interest around the 16 strike and then the 17.50 strike. If this market moves higher we could see Bank of America pin to the 17.50 strike as the derivative contracts are unwound, but that's a long shot in two days. I believe there may be some speculation as to who the new CEO for BAC could be which is why it traded quite a bit higher today on above average volume. It is very rare to see a Bristol Myers straddle being among the most active options traded, however we believe this is a bullish trade. If someone were very bearish I don't think they would be spending a ton of money purchasing in the money put options on BMY, so I believe someone is very bullish and this is a "synthetic stock" position. One would sell the 30 strike put options and buy the 30 calls. This would give them the stock for about a quarter less than current share price, and give them unlimited gains if the stock goes higher. We noticed this was on the breakout list of stocks to watch for Tuesday, therefore I believe someone is taking a very bullish bet on this stock.

I did not do too much trading today because I have been very busy with my retail website, but I did manage to sell at-the-money put options on Suntech Power for $65 per option contract. I did purchase the 14 strike puts to limit my losses, so I ended up taking $50 per contract for the spread. I believe Suntech (STP) is a safe play even if they report an ugly quarter, this is because of the news that came out last week. I think this is extremely good news, and on any weakness we could see buyers stepping in. Happy trading! Sphere: Related Content

Volume Talks: Hot Stocks on Heavy Volume & Detailed Buy Write Option Trade

Here is a list of stocks which traded higher Tuesday November 17, 2009 on unusually higher volume. As always, 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. The second part of 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
Tween Brands Inc. (TWB) 9.35% 1827.16%
Nabi Biopharmaceuticals (NABI) 14.44% 1180.07%
Jinpan International Limited (JST) 8.49% 490.42%
China Automotive Systems, Inc. (CAAS) 4.74% 380.90%
The Dress Barn, Inc. (DBRN) 8.92% 322.13%
SINA Corporation (SINA) 9.61% 247.86%
Alkermes, Inc. (ALKS) 14.43% 246.55%
Aixtron AG (AIXG) 2.11% 212.84%
Mead Johnson Nutrition CO (MJN) 2.64% 182.27%
Longtop Financial Technologies Limited (LFT) 5.85% 178.91%
Omega Healthcare Investors (OHI) 2.66% 93.92%
ION Geophysical Corp. (IO) 7.07% 85.02%
NBTY, Inc. (NTY) 2.07% 83.03%
The DIRECTV Group, Inc. (DTV) 2.05% 73.87%
Veeco Instruments Inc. (VECO) 5.07% 53.80%
Companhia de Bebidas das Americas (ABV) 1.11% 50.72%
Liberty Media Corp (LMDIA) 2.52% 27.76%
Hecla Mining Company (HL) 5.31% 27.55%
M & F Worldwide Corp. (MFW) 3.12% 20.37%

There are many stocks listed above which I have seen appear many times on similar lists lately. This list is also 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 Hecla Mining (HL). This stock exploded to the upside after a good earnings release November 2, 2009. Note that this stock closed a penny from its high which is also its 52 week high, this is a very bullish sign. With the help of the market and a weak dollar, 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).

Hecla Mining Option Trade: As you can see from the 30 day (30 minute interval) chart above, after consolidating for much of October and selling off with the rest of the market into early November, Hecla Mining (HL) has started to trend up and with some momentum! Monday HL broke two bullish chart formations: the rectangle and triangle. Judging by this chart and my thoughts on a weak dollar going into the end of the year, I certainly would and most likely will get behind this stock, at least until a bearish pattern emerges and a downtrend is confirmed in this stock. I will give two examples of the Buy-Write Option Strategy below.

Neutral Buy-Write Strategy: Let's say I don't think Hecla Mining will move too much in either direction by December options expiration, I would look at structuring this strategy around the December 6 strike call options. Using this strategy I will protect my shares of HL 10.6% (assuming they were purchased for 6.15 a share) and if HL expires at December options expiration above 6 a share, this strategy would return 8.1%.

Bullish Buy-Write Strategy: Let's say I believe Hecla Mining will continue higher and has a chance at getting to 7.50 a share by December options expiration (22% higher from Tuesday's closing price). I would look to structure this trade around the December 7.50 strike call options. Using this strategy I would only protect my HL shares by 3.3%, but my potential gains would also be much greater. If HL closed at or above 7.50 a share on December options expiration the return for this strategy would be 25.2%.

This strategy requires the shares of the underlying stock and the knowledge of stock options. It is important to note that the downside risk of holding the stock still exists with this strategy, however some of the downside loss is eliminated due to the premium received from the call options. If you feel the stock could move sideways or higher in the near future, the strategies outlined above 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 IO

Bookmark and Share
Sphere: Related Content

Tuesday, November 17, 2009

Most Active Stock Options November 17, 2009 & Trading Activity

As of today the top ten option contracts traded were:
  1. HSBC (HBC) January 35 Call Options
  2. Avon (AVP) January 22.50 Call Options
  3. United Technologies (UTX) November 65 Call Options
  4. S&P 500 SPDR (SPY) November 110 Call Options
  5. Target (TGT) January 30 Call Options
  6. United Technologies November 60 Call Options
  7. 3M (MMM) January 55 Call Options
  8. S&P 500 SPDR November 109 Put Options
  9. Honeywell (HON) November 38 Call Options
  10. HSBC November 55 Call Options
As you can see there are a lot of dividends being spun out tomorrow. All of the stocks listed above are all dividend option plays. Therefore there isn't too much to analyze from today's most active option contracts. I didn't trade too much today, but one position I did open was on RINO International (RINO) I purchase December 30 strike call option contracts. I am hoping we get strength in the underlying very soon so I can complete my vertical call option spread by selling the December 35 strike call options against the. Happy trading! Sphere: Related Content

Breakout Stocks on BIG Volume November 16, 2009 & RINO Detailed Option Trade

Here is a tall list of stocks which traded higher Monday November 16, 2009 on unusually higher volume. When we have a move such as we did Monday, it is not unusual to see this many stocks moving higher on greater volume than the 50 day average. 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
Crystallex Intl Corp KRY 73.08% 2042.84%
Nabi Biopharmaceuticals NABI 26.40% 1934.15%
Wave Systems Corp Cl A WAVX 9.91% 472.94%
K H D Humboldt Wedag KHD 19.59% 463.71%
Faro Technologies Inc FARO 12.57% 422.79%
Landrys Restaurants Inc LNY 18.05% 403.28%
Phase Forward Inc PFWD 7.25% 291.97%
Dataram Corp DRAM 25.21% 279.89%
Bristol-Myers Squibb Co BMY 4.83% 272.72%
Evolution Petroleum Corp EPM 7.58% 263.01%
Ishares S&P/C 1-3 Intl T ISHG 0.69% 230.83%
Willbros Group Inc WG 6.72% 220.32%
Aixtron A G Ads AIXG 3.31% 188.16%
Immunogen Inc IMGN 4.83% 184.91%
Geoeye Inc GEOY 2.75% 170.79%
Nara Bancorp Inc NARA 15.03% 167.76%
Nicholas Financial Inc NICK 5.61% 164.63%
Peet's Coffee And Tea PEET 6.75% 152.69%
Steven Madden Limited SHOO 6.78% 147.47%
Oplink Communications OPLK 2.95% 133.39%
Rightnow Technologies RNOW 6.59% 119.01%
Home Inns & Htls Mgt Ads HMIN 3.58% 119.00%
RINO International Corp RINO 8.18% 97.91%
Sirona Dental Systems SIRO 2.96% 96.41%
T I M Participacoes Ads TSU 5.71% 82.49%
Comp De Bebidas Adr ABV 3.60% 71.23%
N B T Y Inc NTY 2.41% 69.08%
Par Pharmaceutical Cos PRX 2.23% 66.05%
Salesforce.Com Inc CRM 1.09% 40.34%
Valeant Pharmaceut Intl VRX 1.95% 40.10%
James River Coal Company JRCC 4.33% 38.25%
Vanguard Industrials Etf VIS 2.11% 38.02%
M & F Worldwide Corp MFW 4.04% 35.94%
Nu Skin Enterprise Cl A NUS 3.44% 34.29%
Priceline.Com Inc PCLN 2.08% 33.74%
Duoyuan Global Water Ads DGW 3.31% 31.11%
America Movil Sab Adr A AMOV 2.59% 21.95%

There are many stocks listed above which I seen appear many times on similar lists lately. In some of my previous breakout bull reports, I outlined an option strategy on both HMIN (see it here) and NTY (see it here). This list is also 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 RINO International (RINO), as I have watched it appear several times in the last month on my daily screen for these stocks. This stock exploded to the upside Friday after a great earnings release. Note that this stock closed 90 cents below its high for the day (also 52-week high) which could mean a reversal is in play, however it came off of the highs on light volume. I will look to be purchasing this stock if it can trade back up near a 52 week high on above average volume in the near future. With the help of the market I believe this stock will continue much higher. The December option contracts on RINO also traded much higher than the daily average Monday. 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).

RINO International Option Trade: As we can see from the 30 day (30 minute interval) chart above, this stock gapped higher and broke through resistance on huge volume Friday, and continued higher Monday to break and close above the 26.50 resistance level. From the chart we can see a Rising Wedge formation is emerging which is a bullish pattern. If the stock can breakout of this formation, I believe it has a shot at 30 to 35 a share in the near future, therefore I wouldn't mind getting behind the stock, at least until a bearish pattern emerges and a downtrend is confirmed in this stock. 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.

As stated above, I believe the stock has a shot at 30 to 35 a share, so I am looking to open Vertical Call Spreads on this stock. This is a fairly simple trade to open and only requires the use of two separate option contracts, the December 30 & 35 Call options. Both legs in this spread look as if they have gaining interest as of today, as the December 30 strike call options traded almost 60% of the open interest Monday, much higher than the daily average, and the December 35 strike call option contracts traded over 500% of the open interest Monday, easily trumping the average daily volume on these contracts. The theoretical price for this spread as of close Monday is roughly $130 per option spread.

Profit and Loss: Let's say I opened just one spread. If RINO sells off significantly, this strategy would lose a maximum of $130 per option spread. Now let's assume the stock continues to rally and closes at December option expiration at or above $35, this position would return maximum profitability, $370 per option spread or 285%. It is worth noting the break even point for this strategy, it would be at $31.30 per share of RINO, therefore anything above this level in the underlying at December options expiration 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 the stock 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.

Short PCLN November 175 Put Options

Bookmark and Share
Sphere: Related Content

Monday, November 16, 2009

Most Active Stock Options November 16, 2009 & Trading Activity

As of today the top ten option contracts traded were:
  1. Microsoft (MSFT) January 17.50 Call Options
  2. Microsoft November 28 Call Options
  3. Microsoft November 26 Call Options
  4. Microsoft January 20 Call Options
  5. Microsoft November 27 Call Options
  6. Microsoft November 25 Call Options
  7. S&P 500 SPDR (SPY) November 111 Put Options
  8. S&P 500 SPDR November 110 Call Options
  9. S&P 500 Index Options (SPX) December 2011 250 Put Options
  10. S&P 500 SPDR November 111 Call Options
Microsoft trading so many options today is due to the dividend they will be spinning out of their shares tomorrow. Other than that there isn't anything unusual from today's activity. The SPX December 2011 put options can be viewed as a rather bullish bet as someone sold them at the Bid price which indicates he/she does not think the S&P 500 will be at or below 250 by December 2011 index option expiration.

I sold some put options on Palm (PALM) and Asiainfo (ASIA) for the November expiration this morning. I also purchased back the 110 strike put options I sold Friday on the S&P 500 SPDR (SPY), and will look to resell them or the 109 strikes puts tomorrow on weakness. Happy trading! Sphere: Related Content

30 Option Write Ideas for November's Option Expiration

With the November options expiration approaching us Friday, 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 Friday November 13, 2009). 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 30 stocks which will return a nice percentage gain if they are above the strike price as of November 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 get a better understanding of stock options and different option strategies please check out my Simplified Stock Option Trading E-Books.

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 on Suntech Power (STP) below. Also note STP Reports earnings Thursday which will give even more implied volatility and a higher premium to the call options.

Sell the Suntech Power November 14 strike call option. The premium received from the call option would give a downside protection of 4.01%. If the stock is assigned at options expiration on November 21, 2009 the total return from this position would be 6.05% in 5 trading days.

Company Ticker Strike Potential Return % Protection %
Suntech Power STP 14 6.05 4.01
Palm PALM 12.5 5.97 5.16
Dow Chemical DOW 30 5.83 0.46
Las Vegas Sands LVS 18 5.69 2.19
Rambus RMBS 19 4.76 2.05
Walter Energy WLT 70 4.16 1.61
First Solar FSLR 120 3.51 2.05
A123 Systems AONE 16 3.47 4.34
Goldcorp GG 45 3.45 1.34
Textron TXT 20 3.23 2.27
Apple AAPL 210 3.11 0.40
Caterpillar CAT 60 3.03 0.95
Dendreon DNDN 29 2.90 2.70
Amazon AMZN 135 2.76 1.23
MasterCard MA 240 2.73 0.48
American Express AXP 41 2.73 1.12
Citigroup C 4 2.72 3.95
Goldman Sachs GS 180 2.69 0.86
Bank of America BAC 16 2.25 2.13
Brocade BRCD 8 2.11 2.73
JP Morgan JPM 43 1.98 1.75
Cisco CSCO 24 1.90 0.67
Google GOOG 580 1.79 0.40
Alcoa AA 13 1.67 3.03
Baidu BIDU 430 1.58 2.16
Baxter BAX 55 1.39 1.06
Visa V 80 1.26 1.26
Potash POT 100 1.09 3.84
Ford F 8 0.83 5.71
Research in Motion RIMM 60 0.78 5.07

To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here. As a shareholder of several of the stocks above, I've written them out for a variety of strikes for the November 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 AA, AAPL December 200 Call Options, AXP, BAC, BRCD, GOOG January 2011 300 Call Options, LVS, PALM, STP, V, Short AA November 14 Call Options, AXP November 40 Call Options, BAC November 17 Call Options, BRCD November 10 Call Options, GOOG November 580 Call Options, LVS November 20 Call Options, PALM November 17.50 Call Options, PALM November 12.50 Put Options, V November 80 Call Options

Bookmark and Share
Sphere: Related Content

Hottest Blog Posts of All Time