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

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Friday, February 26, 2010

Thursday's Hot Stocks on Heavier Volume

With the major indices trading lower Thursday, there were 21 stocks which fought the trend and traded higher on heavier volume. If this is your first time reading one of my breakout reports you'll want to read the section below, however if you are familiar with my daily breakout report you should skip ahead to the list of stocks.

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 21 stocks, all of which traded higher on heavier volume Thursday February 25, 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
Coca-Cola Enterprises (CCE) 32.85% 1635.94%
Dr Pepper Snapple Group (DPS) 11.10% 781.15%
True Religion Apparel (TRLG) 18.38% 649.76%
Cinemark Holdings (CNK) 4.70% 334.09%
Mylan (MYL) 6.59% 325.24%
Safeway (SWY) 5.23% 303.13%
Limited Brands (LTD) 2.83% 298.08%
TRW Automotive Holdings (TRW) 7.22% 252.96%
Iron Mountain Inorated (IRM) 7.08% 239.72%
Liberty Media (LINTA) 8.20% 215.33%
Cablevision Systems (CVC) 3.29% 194.26%
Kohl's (KSS) 4.83% 180.93%
The TJX Companies (TJX) 3.04% 153.29%
Altera (ALTR) 1.20% 109.08%
Big Lots (BIG) 3.52% 81.55%
Whole Foods Market (WFMI) 1.62% 62.22%
Perrigo Company (PRGO) 1.93% 51.98%
Cree (CREE) 1.84% 43.49%
China Agritech (CAGC) 6.48% 41.75%
DineEquity (DIN) 2.60% 39.92%
ATP Oil & Gas (ATPG) 5.03% 25.38%

Out of the 21 stocks above, one stock I will be keeping a close eye on in the following sessions is China Agritech (CAGC). I have noticed China Agritech appear multiple times lately, including on Monday's List. I believe after Thursday's price action it could be poised for a move even higher, with a bullish candle pattern emerging. You will see a bullish engulfing pattern on the chart below, however I would like to see continued strength and a close above 24.03 (which takes out the open price on February 23) on heavier volume for a confirmation. Unfortunately I will not be detailing an option strategy today as options on CAGC were recently released for trading and they currently have zero open interest across the board, therefore they are still very illiquid. I may post the option strategy I will be looking to use on CAGC (if and when I decide to do so) in a future post so keep checking back if you want some ideas.

Click chart to enlarge
It is also important to note that one stock which appeared both Thursday and Wednesday is Cree, Inc. (CREE), so I will also be watching that stock in the following trading sessions as well.

These are just examples and are not recommendations to buy or sell any security.

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 Sphere: Related Content

Thursday, February 25, 2010

Wednesday's Hot Stocks on Heavier Volume

With the U.S. markets paring much of Tuesday's losses Wednesday, there were 15 stocks which hit my screener that traded higher on heavier volume. If this is your first time reading one of my breakout reports you'll want to read the section below, however if you are familiar with my daily breakout report you should skip ahead to the list of stocks.

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 15 stocks, all of which traded higher on heavier volume Wednesday February 24, 2010. Many times I find an option strategy I plan on opening if I am convinced some money can be made, however tonight is one of those rare instances where I will not be outlining any trades. However it is still important to track these stocks because if they appear again in the following sessions this may signal some real bullish activity. It is also important to note that this method is just one of the ways I use to find stocks for potential option trades.

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
Dollar Tree (DLTR) 12.26% 507.63%
ViroPharma Incorporated (VPHM) 10.24% 196.17%
TIM Participacoes (TSU) 5.51% 191.25%
Altera Corporation (ALTR) 3.92% 122.95%
Acme Packet (APKT) 6.05% 107.79%
Dollar Thrifty Automotive Group (DTG) 2.01% 95.11%
Capella Education Company (CPLA) 3.28% 90.92%
Nordson Corporation (NDSN) 3.74% 85.91%
Green Mountain Coffee Roasters (GMCR) 4.12% 77.51%
Cracker Barrel Old Country Store (CBRL) 2.88% 54.80%
Ashland (ASH) 4.33% 50.66%
Rackspace Hosting (RAX) 3.46% 27.03%
Aegean Marine Petroleum Network (ANW) 3.12% 25.97%
The Estee Lauder Companies (EL) 2.30% 24.57%
Cree, Inc. (CREE) 1.62% 21.83%

Out of the fifteen stocks above, one I will be keeping a very close eye on is Rackspace Hosting (RAX). I have traded Rackspace multiple times over the past 9 months and it looks as if it could move higher. I would consider a long position in RAX if it closes two days above 20.50. It may also be beneficial to note that Nordson Corporation (NDSN) also appeared on Tuesday's list of Hot Stocks.

Important Updates to Previous Posts:
First I believe it is important to make a quick update to Tuesday's blog post and my option strategy outlined on Rovi Corporation (ROVI). As stated I was looking for two consecutive closes above 34.50 in order to get long my bullish option strategy, however Rovi not only failed to show strength as the entire market rallied, but actually developed an ugly chart pattern, a bearish harami candle pattern. In order to still consider the strategy outlined yesterday, I will need to see this bearish pattern voided within the next few sessions. If the pattern is not voided I believe the play now becomes a bearish option strategy or a short candidate. If this pattern is not voided, I would consider a short position with a stop loss near 34.50. Sphere: Related Content

Wednesday, February 24, 2010

Tuesday's Hot Stocks: Ride the Rovi Rave

With the U.S. markets selling off sharply Tuesday, there were 10 stocks fighting the trend and on higher than usual volume. If this is your first time reading one of my breakout reports you'll want to read the section below, however if you are familiar with my daily breakout report you should skip ahead to the list of stocks and option strategy below it.

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 10 stocks, all of which traded higher on heavier volume Tuesday February 23, 2010. However I will only be writing about one stock in detail which I'll be adding to my watch list, and outline an option trade I may look at opening in the near future.

This method is just one of the ways I use to find stocks for potential option trades. The first part of this post will show the list of stocks which traded higher on above average volume. 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 heres..

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
Millipore Corporation (MIL) 1.74% 1073.66%
Expeditors International of Washington (EXPD) 6.83% 354.46%
Texas Roadhouse, Inc. (TXRH) 6.62% 336.57%
Nordson Corporation (NDSN) 8.78% 290.77%
Bio-Reference Laboratories, Inc. (BRLI) 2.08% 205.60%
Whole Foods Market, Inc. (WFMI) 2.80% 163.59%
Rovi Corporation (ROVI) 2.55% 151.72%
China Automotive Systems, Inc. (CAAS) 5.02% 129.34%
Sirius X M Radio Inc (SIRI) 2.75% 78.48%
Tri-Tech Holding Inc (TRIT) 6.49% 16.93%

Rovi Corporation (ROVI) appeared on a similar list Monday which makes it the stock I will be writing about today. As always, I will give a company profile from Google (GOOG) Finance below.
Rovi Corp, formerly Macrovision Solutions Corporation, provides a set of solutions that are embedded in its customers’ products and services and used by end consumers. The Company’s offerings include interactive program guides [IPGs]; embedded licensing technologies (such as recommendations and search capability), standards based media connectivity middleware, media recognition technologies, licensing of its database of descriptive information about television [TV], movie, music, books, and game content, and content protection technologies and services. The Company sells its products into the market verticals, such as service providers (cable, satellite, telecommunications, mobile and Internet service providers), consumer electronics [CE] manufacturers and others. In January 2009, the Company sold its TVG Network business and, in February 2009, it sold TV Guide Network and TV Guide Online businesses.
From the chart below we can see that Rovi is approaching its 52 week high and closing high set back in October (34.50 per share and next level of resistance). As volume is increasing going into this resistance, I believe we have a good chance of breaking above and even higher in the following days/weeks. Before I enter into this trade I would like to see ROVI close two days higher than 34.50. Following the chart, I will outline an option position I am looking at opening and why.

Click to enlarge
Rovi Corporation Option Strategy: With volume on shares of ROVI increasing Tuesday, near-the-money call options also had some bullish action. The March and April 35 strike call options were both getting action as shares traded higher. The March 35 call options traded 260 contracts on an open interest of 40, and the April 35 Call options traded volume of 1,081 on open interest of 597. I am looking to follow the money here and open a Synthetic Stock like option strategy for the March options expiration. This is similar to the Synthetic Stock option strategy but slightly different as I will explain shortly. First of all I would like to sell March in-the-money vertical put spreads on ROVI. Using current market data, I would look to sell the March 35/30 Vertical put spread for a net credit of $140 per spread. With the credit received I would then choose to purchase March 35 strike call options for $60 per contract. This strategy is slightly different from a synthetic stock option strategy because I will be purchasing the 30 strike put option, this will limit my downside risk in case ROVI sells off significantly. This is a very bullish option strategy and I'll look to be trading out of it on continued strength in the stock.

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 $420 per position, this will occur if ROVI sells off and expires on March options expiration at or below 30 per share. This position will become more and more profitable with each penny ROVI trades above the break even point of 34.20 per share (less any commissions).

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 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 SIRI Sphere: Related Content

Tuesday, February 23, 2010

Monday's Hot Stocks: Brush Up your Portfolio with Sirona Dental

With the major indices trading lower across the board Monday, there were quite a few stocks which traded higher with above average volume. If this is your first time reading one of my breakout reports you'll want to read the section below, however if you are familiar with my daily breakout report you should skip ahead to the list of stocks and option strategy below it.

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 is quite large and includes 13 stocks, all of which traded higher on heavy volume Monday February 22, 2010. However I will only be writing about one stock in detail which I'll be adding to my watch list, and outline an option trade I may look at opening in the near future.

This method is just one of the ways I use to find stocks for potential option trades. The first part of this post will show the list of stocks which traded higher on above average volume. 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 heres..

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
Amicas, Inc. (AMCS) 7.64% 2996.72%
Smith International, Inc. (SII) 8.83% 2135.42%
Green Plains Renewable Energy Inc. (GPRE) 20.16% 1467.79%
Pall Corporation (PLL) 5.29% 467.46%
TASER International, Inc. (TASR) 6.71% 218.27%
PerkinElmer, Inc. (PKI) 2.71% 194.91%
China Agritech Inc. (CAGC) 5.40% 108.77%
EZCORP, Inc. (EZPW) 4.93% 99.04%
Mylan Inc. (MYL) 2.83% 83.61%
Blue Coat Systems, Inc. (BCSI) 2.21% 71.05%
Sirona Dental Systems, Inc. (SIRO) 1.62% 70.78%
Rovi Corporation (ROVI) 1.96% 68.75%
China Automotive Systems, Inc. (CAAS) 12.91% 63.33%

One stock which I have noticed appear on my screener multiple times lately is Sirona Dental Systems (SIRO). As always, I will give a company profile from Google (GOOG) Finance below.
Sirona Dental Systems, Inc. (Sirona) is a manufacturer of dental equipment. Sirona focuses on developing systems and solutions for dentists globally. The Company provides a range of advanced products in each of the four primary areas: Dental CAD/CAM Systems; Imaging Systems; Treatment Centers and Instruments. Sirona distributes its products globally to dental practices, clinics and laboratories through an international network of distributors.
From the chart below, we can see that Sirona Dental has started moving off it's old level of resistance (now support) at around 35. This is a rather bullish sign, especially as volume is increasing. Below I will outline a Long Combo Option strategy which will cost me next to nothing to open, give me unlimited gains to the upside, while still capping my losses to the downside in case of a severe sell off.

Click chart to enlarge
Sirona Long Combo Option Strategy: This is a very bullish option strategy, and is called a Long Combo because I will be using both put and call options. As we can see the lower part of the bollinger bands and strong support come in near 30 per share, so this is where I will decide to take some premium to finance the other side of this bullish trade. I would first look to sell April 30/25 Vertical Put Spreads for a net credit of $25 per spread. This will put $25 in my portfolio for each spread sold, and then with the premium received I would look to purchase March 40 Strike Call Options (which had some heavy activity moving into them Monday, trading 366 contracts on open interest of 345) for a premium of $25 making the overall cost of this trade the commissions paid. As stated this is a very bullish option strategy that will benefit greatest if SIRO continues higher by March options expiration.

Profit & Loss: My maximum loss using current data is $500 per long combo, and that is if the stock trades lower and closes on April options expiration at or below 25 per share. If the stock continues higher and come March options expiration shares of SIRO are at or above 40 per share, this strategy will be profitable (less any commissions and assuming the April Vertical Put Spread can be closed for less than the March Calls are sold for). Assuming this strategy is filled for just the cost of commissions, this strategy will break even as long as SIRO trades and expires above 30 per share at April options expiration.

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 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: No Positions Sphere: Related Content

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