To reiterate previous blog posts like this, the first thing I do is scan the list for familiar names, such as stocks I am quite familiar with or ones which have appeared on similar scans multiple times in the past week or two (most of these names are unfamiliar so it saves a lot of time). This indicates there may be some real momentum behind the stock, and that it could trade higher in following sessions as well. Then (if and when any of the stocks I find are familiar to me), I make sure the stock has options available to trade, and then take a look at the chart(s) to see if I can structure a potential option trade. The list in this post includes 28 stocks, all of which traded higher on heavier volume Monday March 1, 2010. Many times I find an option strategy I plan on opening if I am convinced some money can be made.
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|
|OSI Pharmaceuticals, Inc.||(OSIP)||51.94%||3438.90%|
|Halozyme Therapeutics, Inc.||(HALO)||21.21%||565.39%|
|Insituform Technologies, Inc.||(INSU)||3.26%||308.66%|
|Volterra Semiconductor Corporation||(VLTR)||6.96%||285.11%|
|Crosstex Energy, L.P.||(XTEX)||11.39%||248.45%|
|Power Integrations, Inc.||(POWI)||6.23%||247.08%|
|Pacer International, Inc.||(PACR)||13.07%||190.37%|
|Cantel Medical Corp.||(CMN)||5.22%||178.79%|
|Tuesday Morning Corporation||(TUES)||11.21%||167.25%|
|A. O. Smith Corporation||(AOS)||1.32%||144.08%|
|The Dress Barn, Inc.||(DBRN)||3.50%||115.04%|
|Rockwell Collins, Inc.||(COL)||3.75%||113.94%|
|Riverbed Technology, Inc.||(RVBD)||5.14%||111.79%|
|NetLogic Microsystems, Inc.||(NETL)||3.03%||98.63%|
|F5 Networks, Inc.||(FFIV)||4.39%||87.90%|
|M & F Worldwide Corp.||(MFW)||8.55%||81.15%|
|The Boston Beer Company, Inc.||(SAM)||3.42%||80.31%|
|Steven Madden, Ltd.||(SHOO)||4.02%||80.14%|
|Nu Skin Enterprises, Inc.||(NUS)||5.69%||72.16%|
Out of the 28 stocks listed above the one which I will be keeping an extra close eye on in the following sessions is Volterra Semiconductor Corporation (VLTR). This stock looks like it has some real momentum, and had its highest 52 week close Monday. As always, I will give a company profile from Google (GOOG) Finance below.
Volterra Semiconductor Corporation (Volterra) designs, develops and markets, high-performance analog and mixed-signal power management semiconductors for the computing, storage, networking and consumer markets. The Company's core products are integrated voltage regulator semiconductors and scalable voltage regulator semiconductor chipsets that transform, regulate, deliver, and monitor the power consumed by digital semiconductors. Through its power system architecture and mixed-signal design techniques, Volterra has integrated power, analog, and digital circuits onto a single complementary metal oxide silicon [CMOS] semiconductor, eliminating the need for a large number of discrete components required by conventional power management solutions.As stated Volterra had its highest close on Monday, and I think it has potential to go even higher. Before I go too much further into detail, it is important to note that it may be slightly overbought short term (judging by how the stock pulled back off the higher end of the bollinger band Monday), therefore before I jump into the trade outlined below, I would like to see the stock hold the 23 price level over the next few trading sessions. If the stock can hold the 23 level, I would look at opening March 22.50/25 Vertical Call Spreads. It looks like these call spreads had some action Monday, as 72 of the March 22.50 strike call contracts traded on open interest of 350, and 70 of the March 25 strike Call contracts traded on an open interest of 55. It is also very important to note that these contracts are not as liquid as I'd like them to be, but with increased interest moving into them they should become more liquid.
Click chart to enlarge
Volterra Option Strategy: As stated I will be looking at opening a March 22.50/25 Vertical Call Spread position on Volterra. This is a very simple option strategy and can be opened with just two legs. I would be a buyer of the March 22.50 call options and a seller of the March 25 call options (1 for 1). If the stock trades higher the call spread will become a bit more expensive to open but will have a higher probability of achieving maximum profitability. Using March options and current market data the spread could be opened for a net debit of $110 per option spread. This spread is already in the money by 0.85 points (85 cents), so at this theoretical price I would be paying an extrinsic option premium of 25 cents a share or $25 per option spread.
Profit & Loss: Although I rarely wait until expiration to get out of my positions, I will outline the maximum profit and losses associated with this trade if I waited until March options expiration to close or get exercised on this position. Assuming I could open this option position for the prices outlined above, my maximum risk is limited to $110 per position, this will occur if VLTR sells off and closes on March options expiration at or below 22.50 per share. This position will achieve maximum profitability if VLTR closes above 25 per share on March options expiration, returning 127% or $140 profit per option spread. The break even point for this strategy is VLTR at 23.60 per share at March options expiration (less any commissions). It is important to note the net delta and gamma for this strategy as well, considering it may be a good idea to trade out of this spread before expiration on continued strength in the underlying. Based on current market data this spread is long delta 0.418, and long gamma 0.022.
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.
Disclosure: Long NTY March 45 Call Options Sphere: Related Content