Is this Market Tired Yet? 30 Option Ideas to Profit and Protect this September

If the unemployment numbers released Friday are rather ugly (in my opinion they are ugly regardless but in other words, worse than expected), the market could sell off significantly. However I am more concerned about the market selling off sometime after Labor Day, as many traders return and decide the market is just too overvalued on a short term basis. As previously stated in my blog, one major reason I believe we could see a sell off is simple profit taking. I currently see the S&P 500 erasing up to 5% of the recent gains. The recent run up in the Volatility Index [VIX] has certainly hinted a near term sell off may be in the works. Historically September is not a great month for stocks either, below is the performance of the S&P 500 in the month of September from 1999-2008 (data downloaded from Yahoo finance):

Date	Open	Close	% Change
9/2/2008	1287.83	1166.36	-9.43
9/4/2007	1473.96	1526.75	3.58
9/1/2006	1303.8	1335.85	2.46
9/1/2005	1220.33	1228.81	0.69
9/1/2004	1104.24	1114.58	0.94
9/2/2003	1008.01	995.97	-1.19
9/3/2002	916.07	815.28	-11.00
9/4/2001	1133.58	1040.94	-8.17
9/1/2000	1517.68	1436.51	-5.35
9/1/1999	1320.41	1282.71	-2.86
Average			-3.86

Based on this data from the past 10 years, September seems to be a very ugly month for the stock market. The S&P 500 has finished the month of September down 6 of the last 10 years for an average of -3.86%. With this September following a near 50% increase in the S&P 500 since early March, I'm looking to get pretty conservative on the shares I still hold.

I have heard nothing but mixed opinions from the professionals on where they think the market may be heading, some very bullish and others very bearish, therefore I am not selling my shares, as they may still have some upside left (S&P gained an average of 1.92% during the same time frame when it traded higher for the month of September), but I have been selling higher strike covered calls on many of my stocks to get some premium and protect my profits. Selling a higher strike call option will allow me to capture profits on the underlying until the strike price of the option is reached, and offset some losses in the case a sell off occurs. In the event of a sell off, selling covered calls will hedge to the downside (with the premium received). Selling higher strike calls on my shares is ideal for this type of speculation, which is why I have decided to outline 30 ideas for the September options expiration, one for each of the top 25 stocks listed in the S&P 500 and 5 very popular high beta stocks. To learn more about this strategy, and stock options in general click here.

To understand the table, I will give a detailed example of Apple (AAPL) below.

Sell the Apple out of the money September 170 strike call option. The premium received from the call option would give a downside protection of 1.72%. If the stock is assigned at options expiration on September 19, 2009 the total return from this position (assumes the buy/write option strategy was used) would be 3.80% in 15 days.

A more bearish approach would be to write out the in the money Apple 165 Call option. This approach would protect to the downside 3.15%, and if the stock is assigned at expiration it would return 2.23%.

The September options expiration is 15 calendar days away, so it may be best to monitor the position and buy back the call option on weakness of the underlying stock, if the stock rallies after it is purchased back, write it back out for a higher premium etc... Writing stocks out before the weekend will take some premium away from these option contracts as well, which is another positive to being the seller of these options.

The stocks listed below are ranked in order from greatest to least market cap. All data as of market close Thursday September 3, 2009.

Company	Ticker	Strike	Return %	Protection %
Exxon Mobil Corporation	XOM	70	3.53	0.98
Microsoft Corporation	MSFT	25	4.52	0.83
Wal-Mart Stores, Inc.	WMT	52.5	2.26	0.79
JPMorgan Chase & Co.	JPM	42.5	3.51	2.59
Johnson & Johnson	JNJ	60	1.39	0.87
The Procter & Gamble Company	PG	52.5	1.15	1.85
International Business Machines Corp.	IBM	120	3.73	0.58
Apple Inc.	AAPL	170	3.80	1.72
AT&T Inc.	T	26	3.98	0.60
Bank of America Corporation	BAC	17	4.33	3.38
Google Inc.	GOOG	470	3.74	1.02
General Electric Company	GE	14	5.58	1.49
Chevron Corporation	CVX	70	3.47	1.02
Wells Fargo & Company	WFC	28	5.80	1.75
Cisco Systems, Inc.	CSCO	22	3.63	1.26
The Coca-Cola Company	KO	50	1.75	0.91
Intel Corporation	INTC	20	4.12	1.13
Pfizer Inc.	PFE	16	1.80	2.30
Oracle Corporation	ORCL	22	4.33	2.00
Hewlett-Packard Company	HPQ	46	4.16	0.67
Philip Morris International Inc.	PM	47	3.19	0.61
PepsiCo, Inc.	PEP	57.5	2.40	0.88
Verizon Communications Inc.	VZ	31	3.24	0.73
Goldman Sachs Group, Inc.	GS	165	3.61	1.54
QUALCOMM, Inc.	QCOM	46	3.82	1.64

Higher Beta Stocks:

Citigroup	C	5	8.60	3.77
Palm	PALM	15	9.78	4.22
Las Vegas Sands	LVS	15	8.72	4.05
American International Group	AIG	44	6.18	0.79
Fannie Mae	FNM	2	26.83	4.88

To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here. As an owner of Bank of America, Citigroup, Goldman Sachs, and Palm shares, I've written them out for a variety of strikes for September expiration for large premiums on higher levels of implied volatility and purchased them back on weakness and this alone has lowered my cost basis on these shares greatly. Currently my Palm shares are not written out, but I expect to be writing them out on increased levels of implied volatility just before earnings are released this September.

I never write all of my shares out at the same time in case the market continues to rally; shares can be written for higher strike, higher premium, or even a combination of both. If we get a pullback, market volatility should increase, causing even out of the money call options to bring premium (this should make sense: as with higher volatility strike prices have a greater probability of being reached).

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 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 BAC, C, GOOG, GS, PALM, PFE, Short BAC September 18 and 19 Call options, C September 5 Call options, GOOG September 490 call options, PFE September 17 call options.


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Financial Stocks Over Heated? Protect with Diagonal Put Spreads

Many financial stocks have been in the spotlight in the past week, as rumors have caused them to sky rocket. I am sure you are quite familiar with them, as you've read about or watched their ticker symbol scroll by, but to mention four of them they are: American International Group (AIG), Citigroup (C), Fannie Mae (FNM), and Freddie Mac (FRE). Citigroup has not rallied nearly in step with the other three mentioned over the past week, but has had a much later rally than many of the other large financial names.

I am very skeptical of these names climbing so fast recently, and although I don't usually purchase and hold put options overnight (or call options for that matter, I use them frequently but usually trade out of them by market close), I have made an exception as I have purchased put options for American International Group (AIG) for the September 45 strike. I am bearish on the financial stocks in the short term, but extremely bearish on AIG. I am expecting a continued sell off, and I think a sell off will hit the financial sector the hardest as mentioned in Are Financial Stocks Especially Overpriced? Some Protective Ideas.

Financial stocks; too fast, too soon?

Looking at the first Heatmap below, we can see that financial stocks are up more on average than any other sector in the past month (and the most since the market bottom in early March - not shown). The majority of the box is the brightest level of green (the brightest level green indicates a 6% or greater increase in the stock, and the brightest level red indicates a 6% or greater decrease in the stock. See the Heatbar below the first Heatmap to get a detailed definition of colors % gain or loss). I have highlighted one of the larger market cap stocks JPMorgan Chase (JPM) to give an idea of how to read the Heatmap. The map is comprised of many different stocks, the larger the box the greater the market cap. As you can see JPM is just one of many stocks which traded higher than 6% in the past month from the financial sector.

(click all images to enlarge)

The second Heatmap below is a zoom in of the financial sector, and although it may look like only a few different financial stocks (due to identical colors), it is the entire financial sector (stocks included are the financial stocks which which have options available to trade). I have highlighted Bank of America (BAC) to show just one stock which is up greater than 6% in this period.

We can see the financials are extremely over heated on a 1-month basis, so if the market continues to sell off, I believe the financials will suffer the most. The strategy below will certainly help hedge against any financial positions or can be used as an all out speculative play if one is very bearish on the financial sector. The strategy below requires the knowledge of stock options, to learn more about this strategy, risks, pricing, calculations, other strategies, and options in general click here.

The Trade:

I have opened a diagonal put spread using the Direxion Daily Financial 3X Bull (FAS). I purchased the January 70 strike put options and immediately sold some October 50 strike put option against them. The January 70 Put option contracts were $1,800 a piece, and the October 50 strike put option contract was trading for $265 per contract (at the time of sale) making this spread net long $1,535 per contract.

Possible Outcome:

If the financial sector continues to sell off resulting in FAS to be at or below 50 at October options expiration, this position will help hedge my financials by returning 30.3%. If FAS does not trade below this level at October options expiration I will sell a similar put contract for the month of November. I have some Januray put option contracts which I have not completed a diagonal put spread on, but will look to do so on continued weakness, perhaps even for the September options expiration.

I am long several financial stocks, therefore using this strategy will help me hedge against a sell off. I feel this is a much better strategy than going long the the Direxion Daily Bear ETF's such as the FAZ or BGZ, as increased levels of volatility cause these funds to decay over time as blogged about here. The FAS is a very hard ETF to sell short for this reason (decay), therefore premiums may be a bit overvalued at times. Longer dated put options on the FAS tend to hold their value compared to longer dated call options on the Direxion Daily Financial 3X Bear (FAZ), once again because they decay with increased levels of volatility.

The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart)

These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

Disclosure: Long AIG September 45 Put options, BAC, C, FAS January 70 Put options, Short BAC September 19 Call options, C September 5 Call options, FAS October 50 put options

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Early Indicator: Stock Market Futures Tuesday September 1, 2009

As of now it looks like we will kick off September to a positive start, but it is very early yet and a lot can change by market open, and month end. September is not historically a great month for the bulls, however when September is positive the DOW trades higher by an average of 3.1%. As of now the futures are currently up across the board with the S&P 500 up 3.1 points, NASDAQ 100 up 5.25 points, and the Dow Jones futures up 27 points. I am expecting a sell off to start this month and the volatility to rise. I am hedged with longer dated October 30 strike VIX call options. I will look to add to my position if the market continues to rise and the VIX trades lower, as I've stated several times; a minor sell off in the stock market could cause these VIX options to be very profitable due to the large amounts of implied volatility on the VIX. Happy trading readers, hope September will be even more profitable than August!

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Bullish Stocks to Watch for the Week of August 31, 2009

In this post is a list of 13 stocks that I'll be keeping an eye on for the week ahead. All of the stocks mentioned in this post are stocks which have broken out to the upside on unusually large volume. The table below shows the company, ticker, Friday's per share % increase, and Friday's volume increase (% increased compared to 50 day average).

Company	Ticker	Price Change	Volume Change
Allied Irish Banks Adr	AIB	7.33%	176.88%
Curis Inc	CRIS	19.88%	597.20%
Echelon Corporation	ELON	21.29%	499.32%
Encorium Group Inc	ENCO	44.44%	2635.25%
E*Trade Financial Corp	ETFC	13.10%	414.20%
Glu Mobile Inc	GLUU	19.05%	1923.97%
Helicos Biosciences Corp	HLCS	36.72%	438.60%
Incyte Corporation	INCY	5.30%	56.37%
Martha Stewart Living A	MSO	12.92%	666.27%
Qlogic Corp	QLGC	9.02%	258.38%
Silicon Laboratories Inc	SLAB	3.84%	212.99%
Tiffany & Co	TIF	11.32%	243.68%
Vical Inc	VICL	8.01%	30.64%

Many of these stocks are up big on earnings announcements, therefore it may be a good idea to wait for some profit taking and purchase the stocks on weakness. The stock which is most attractive to me this week is Tiffany & Co (TIF). Below is a trade idea which I may be using in the week(s) to come. To learn more about the risks, pricing, calculations, strategies, and options in general click here.

Tiffany Trade Idea: I have been looking to get long Tiffany stock for my investment portfolio for some time now, however it ran too fast and I feel I have missed it. I am not going to chase it, because I feel some profit taking could occur before it moves higher, therefore I will be using the strategy outlined below.

As stated previously I don't mind owning Tiffany shares, but at a lower price, so I will be selling naked put option contracts for the October 34 strike. The current theoretical premium received is $1.00 per option contract, with that premium I will use it to make an all out bullish bet on Tiffany by purchasing out of the money November 45 call options for $50 per option contract.

If the stock happens to sell off and expire below 34 a share at October expiration, I get my shares and my cost is $33.50 per share or 10.83% lower than Friday's close price. If the stock continues to climb higher, moves lower but by less than 4.57 points, or happens to move sideways over the next 47 calendar days I will bank 100% of the premium ($50 per option contract). In the case that the stock continues rising the call for November options expiration will also rise allowing for more profit on the long side.

I use this type of option strategy as a way of setting limit stock orders. This strategy will allow me to participate in Tiffany's stock instead of sitting on the sidelines waiting for the chance to purchase it lower. It also allows me to capitalize on an upward move by purchasing a longer dated out of the money call option, which would be paid for in full by the premium received from the put sold. I decided to choose the higher strike longer dated November options, because I believe they will benefit from increased sales speculation going into the holidays (December options are not yet available), which may drive Tiffany shares higher... Let's face it that blue box sells!

The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart)

These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

Disclosure: No Positions


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Bull or Bear Market Ahead? Who Cares, Profit from a Rising or Falling Stock Market

It seems like yesterday when I was attempting to do some last minute studying for an Environmental Economics test but could not concentrate, because I was very distracted by the nightly news... Yes it was the Sunday night that Lehman Brothers expected to file bankruptcy the following morning, and Merrill Lynch was acquired by Bank of America (BAC). I remember thinking how will this affect the market over the next day, week, month, year, decade, etc..., and will I ever get the job of my dreams on Wall Street (which I am still looking for)?

I am sure I'm not alone when I say, I never expected it to start the chaos it did on Wall Street. Luckily at the time I was very hedged, not because of my expectation for the entire banking industry to nearly collapse, but because I figured the high price of oil would slowly strangle the consumer and could cause a recession. I expected to see the market sell off causing the Volatility Index (VIX) to increase, so as a hedge I purchased out of the money October 30 strike VIX options for $25 per option contract, while the VIX traded below 20 in August. I never expected less than a month later my VIX options would increase more than 30 fold, but they did and I sold half of them while the VIX traded near 32. Selling half of my options resulted in a huge profit, and I couldn't lose my initial investment, so I decided to keep my remaining VIX options until expiration or sell them into strength. Over the next month I sold many of my VIX options for huge premiums helping to keep my entire portfolio profitable, and actually sold my final contracts the day before VIX expiration on October 14, 2008 for more than a 15,000% gain ($3860 per VIX contract), which if I let the options expire and settle for cash the following day (or traded them mid day) would have been even more profitable.

I believe the market will sell off this fall, not because we are approaching the one year anniversary of that "study free" Sunday night, but because I believe we are too overbought. I believe so much as a 5% correction will cause the VIX to spike, but VIX options are very expensive due to this speculation and due to the implied volatility being so high. Even far out of the money VIX options seem expensive (mainly because VIX above previously unheard of levels is now known to be possible). Not to mention if the market continues to rally, VIX options would most likely expire worthless. So, I will take a different (less risky in my opinion) approach to capture a large market sell off, while also being able to profit from a continued market rally.

Examining the mean for the 25 Delta Call and 25 Delta put on three very active index ETF's we can spot which one is trading for the cheapest premium based on volatility.

• PowerShares QQQ NASDAQ ETF (QQQQ) is the highest with the current mean at 23.40%
• SPDR Trust S&P 500 ETF (SPY) is the second highest with current mean at 22.99%
• Diamonds Trust DOW ETF (DIA) is the lowest with the current mean at 20.50%

I chose to structure my option trade around the DIA as it is the cheapest based on volatility, and although the DOW is less volatile, if a significant move occurs in the market the DOW is sure to track closely to the other major indices give or take a few basis points. The trade outlined below requires the knowledge of stock options. To become more familiar with stock options check out my stock options trading E-Books here.

The Trade:

I opened a delta neutral strangle position for the October Dow Diamonds ETF (DIA). As the stock crossed 95.50 Friday, I purchased October 94 put options (Delta -0.429) and October 97 call options (Delta 0.419). I opened this position for $440 per option contract, and if the Dow Jones Industrial Average moves by greater than 5% in either direction over the next 46 calendar days this position will likely result in a profit. Note that if the market moves sideways and the DIA ETF expires between the two strike prices indicated, the position will result in the maximum loss of 100% of the premium paid (in my case, $440 per option contract).

This strategy should only be considered if one believes the market will experience a great move (either up or down), and should never be considered if a sideways move is to come. I believe the market will correct to the downside by 7%-10% before going higher into the year end, therefore I am long this option strangle for October. The optimal case for opening a long strangle option strategy like this would be a sell off, this is because as a sell off occurs, volatility increases [historically], causing option premiums to be priced even higher (all other things equal). Technically if volatility increases sharply without the market moving too much in one direction or another anytime soon, this strangle could also become profitable, but that is very unlikely and I am not opening it for that reason.

If profitable I will look to close out of 25%-50% of my strangles Thursday before the unemployment numbers are released Friday morning. Although the contracts don't expire in September, it should cause increased volatility levels on the underlying, pricing these contracts slightly higher. If I can take a profit before the unemployment rate for August is released, I will do so and purchase them back on decreased volatility levels.

The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart).

These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

Disclosure: Long DIA October 94 Put/97 Call Strangle, VIX October 30 Calls

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Most Active Stock Options August 26, 2009

The top ten most traded option contracts for August 26, 2009 are listed below:

1. Citigroup September 5 Call Option
2. PowerShares QQQ (NASDAQ:QQQQ) September 38 Put Option
3. Citigroup September 4 Put Option
4. Blackstone Group January 5 Call Option
5. S&P 500 SPDR ETF (NYSE:SPY) September 100 Put Option
6. S&P 500 SPDR ETF September 103 Put Option
7. S&P 500 SPDR ETF November 85 Put Option
8. PowerShares QQQ October 39 Put Option.
9. Citigroup September 5 Put Option
10. S&P 500 SPDR ETF November 95 Put Option

It may seem unusual that Blackstone Group (BX) options traded among the most active, but that is simply because they are spinning out a dividend on August 27, 2009. As stated in my mid day most active contracts blog post, it looks as if someone is very bearish and opened a November 95/85 put spread on the S&P 500 SPDR ETF. Citigroup is the most active option contract again... I am surprised a Bank of America contract isn't right up there with the Citigroup ones, or at least the Financial Select Sector SPDR ETF (XLF). I opened up a strangle position on the Direxion Financial 3X Bull today; purchasing call options for the September 84 strike, and put options for the September 75 strike. Each contract cost roughly $1,030 after commissions. Sphere: Related Content

Mid Day Most Active Stock Options August 26, 2009

I am a little late for mid day, but as of 1:30 PM the top ten most active option contracts traded today are:

1. Citigroup September 5 Call Options
2. PowerShares QQQ ETF (NASDAQ:QQQQ) September 38 Put Options
3. Citigroup September 4 Put Options
4. S&P 500 SPDR ETF (NYSE:SPY) November 85 Put Options
5. PowerShares QQQ ETF October 39 Put Options
6. S&P 500 SPDR ETF November 95 Put Options
7. S&P 500 SPDR ETF September 100 Put Options
8. Citigroup September 5 Put Options
9. S&P 500 SPDR ETF September 103 Call Options
10. S&P 500 SPDR ETF September 103 Put Options

November being a few months away it is unusual to two of them in the top traded contracts; I am guessing someone has opened up a 95/85 put spread on the SPY. It also looks as if someone is expecting increased volatility to come and opened an at-the-money option straddle on SPY for the 103 strike price. Sphere: Related Content

Banking on the Banks to Move: Detailed Option Strangle Strategy

With banks continuing to demonstrate strength throughout the month of August, many have been anticipating a sell off to come soon. I too have been anticipating the banks to sell off, but lately they've made a fool of me. Let's face it, this rally could continue for quite a while with all the money sitting on the sidelines. In this article I will outline an option strategy which I'll be opening for the September options expiration, as it returned a great amount of profit for the August options expiration (and I was anticipating a rather calm stock market).

To begin I will show the change for ten of the major financial stocks since the stock market bottom in early March. The table below shows the % change for three time periods following the market bottom: 1 month following the market low, 3 months following the market low, and market bottom to August 25, 2009 (Bottom to Date)

Date used for market low was March 6, 2009.

Company	Ticker	1 Month	3 Month	BTD
American Express Company	AXP	46.75	141.53	217.71
Bank of America Corporation	BAC	135.96	274.12	459.93
Citigroup Inc.	C	166.66	139.21	365.68
The Bank of New York Mellon Corporation	BK	43.31	43.6	49.57
Morgan Stanley	MS	26.64	72.25	67.9
Wells Fargo & Company	WFC	87.81	204.4	236.58
JPMorgan Chase & Co.	JPM	69.87	108.12	162.53
Goldman Sachs Group, Inc.	GS	42.74	82.34	101.84
KeyCorp	KEY	41.78	-3.04	15.71
Regions Financial Corporation	RF	36.45	29.03	88.06

As you can see the rate of acceleration has slowed (not only for financial stocks but many stocks). Most of the financials experienced their largest gains during the first month following the market bottom (March 6, 2009 - April 6, 2009). However from the next table below, we can see financials were not asleep during the month of August.

Company	Ticker	August % Gain
American Express Company	AXP	15.84
Bank of America Corporation	BAC	20.01
Citigroup Inc.	C	49.84
The Bank of New York Mellon Corporation	BK	7.50
Morgan Stanley	MS	5.92
Wells Fargo & Company	WFC	11.73
JPMorgan Chase & Co.	JPM	12.75
Goldman Sachs Group, Inc.	GS	1.00
KeyCorp	KEY	12.10
Regions Financial Corporation	RF	31.89

I strongly believe increased activity will return to the stock market after labor day, causing a large move upward or downward, so I assume financial stocks will either continue to rally greatly or sell off sharply. With this date approaching, I am anticipating a big move again either lower or higher. The strategy I will outline will profit if such a move happens. The way I plan on capturing a move in either direction is by using the option strangle strategy. I plan on doing this by opening a strangle on one of the most volatile financial ETF's available, the Direxion Daily Financial Bull 3X ETF (FAS). To learn more about option strangles, risks, pricing, calculations, other strategies, and options in general click here.

The Trade:

I am anticipating a drop in the financials by September options expiration, but as stated before they could keep rallying; if they do continue to demonstrate great strength this option position will also profit. To make this trade I will choose a near the money option put option. I am thinking the 75 strike Put option (delta -0.389). In case the financials continue to strengthen over the next 24 calendar days, I will also purchase a call option with a similar delta. This happens to be the 84 strike call option (delta 0.40). This strangle would cost me roughly $1000 per option contract.

In order to break even from this strangle, the FAS would need to increase by 20.95% or decrease by 16.37% from close price Tuesday August 25. Anything above or below those levels will result in a profit. Note that this is an extremely risky strategy and should only be used if one believes financial stocks will experience a great amount of volatility, resulting in an increase or decrease above or below these levels. 100% of the position will be lost if the FAS expires anywhere in between the two strike prices ($75 - $84). I opened a similar strangle on FAS for the August options expiration on July 31, 2009 and the FAS increased by 34.5% by options expiration, however as I rarely wait until expiration, I closed my position within one week (August 7) for a very nice profit.

I will be looking at opening this position on decreased levels of implied volatility, one of which I assume will be sometime after the new home sales data is released on Wednesday August 26 at 10 AM.

The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart).

These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

Disclosure: Long AXP, BAC, GS, FAS, Short BAC September 18 Calls, GS September 180 Calls, FAS September 85 Calls


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Mid Day Most Active Stock Options August 24, 2009

As of 1 PM the top ten most active stock option contracts traded are:

1. Citigroup September 5 Call Options
2. Citigroup September 4 Call Options
3. Citigroup September 5 Put Options
4. Citigroup September 6 Call Options
5. SPDR S&P 500 ETF (SPY) September 103 Call Options
6. Citigroup September 4 Put Options
7. PowerShares QQQ ETF (QQQQ) September 40 Put Options
   
8. SPDR Gold ETF (GLD) December 75 Put Options
9. SPDR S&P 500 ETF September 100 Put Options
10. Bank of America September 18 Call Options

Nothing too unusual except the GLD December 75 Put options (volume currently at 41,093 contracts traded today). Sphere: Related Content

16 Breakout Stocks on Big Volume: Week of August 24, 2009

In this post is a fresh list of stocks to watch for the week of August 24, 2009. All of the stocks mentioned in this post are stocks which have broken out to the upside on unusually large volume. The table below shows the company, ticker, Friday's per share % increase, and Friday's volume increase (% increased compared to 50 day average).

Company	Ticker	Price Change	Volume Change
Aeropostale Inc	ARO	10.23%	213.11%
Comstock Homebuilding	CHCI	93.75%	3496.55%
Fronteer Development Grp	FRG	12.27%	278.62%
La-Z-Boy Inc	LZB	9.38%	39.17%
Mentor Graphics Corp	MENT	13.51%	498.31%
Maguire Properties Inc	MPG	22.77%	462.50%
Mueller Water Products	MWA	13.13%	219.63%
Opnext Inc	OPXT	18.50%	746.22%
Republic Airways Holdngs	RJET	11.80%	97.84%
Sinclair Broadcast Group	SBGI	32.56%	753.20%
Smucker J M Co	SJM	4.28%	130.32%
Meridian Resource Corp	TMR	31.25%	241.30%
Veeco Instruments Inc	VECO	13.93%	113.27%
Wet Seal Inc	WTSLA	10.54%	125.15%
Exide Technologies	XIDE	21.24%	297.79%
Sirius X M Radio Inc	SIRI	3.24%	183.79%

Many of these stocks are up big on earnings announcements, therefore it may be a good idea to wait for some profit taking and purchase the stocks on weakness. The stock which is most attractive to me is Aeropostale (ARO). Below are some trade ideas which I may be using in the weeks to come. To learn more about the risks, pricing, calculations, strategies, and options in general click here.

Aeropostale, Inc. Option Trade Ideas: The first trade is very simple and involves purchasing the stock and writing a call option against it. I would purchase the stock and immediately write out a call option for the September 42 strike price. The theoretical price for the option is $90 per contract which will lower the cost per share by 2.3% (as of Friday's close) and would give me a potential return of 8.5% if Aero stock is at or above $42 at September options expiration (26 calendar days).

The second Aero trade I would be looking at is much more risky and a bit more complicated. I would look at opening a diagonal call spread. With implied volatility down after their earnings release, it would be much cheaper to open this spread today versus one week ago ( a similar spread, not identical strike prices). I would purchase the October 38 call options and sell the September 42 call options against them. The position would cost roughly $270 per option spread and assuming Aero's stock is at or above $42 on September 19, 2009 this position would return 48.1%. If the stock is below 42 at expiration, a vertical call spread can be formed using the October 42 strike calls (assuming Aero's stock is within range and the October 42 call option is bringing premium). It is important to note that if Aeropostale stock is below $38 a share at October options expiration the entire position will expire worthless. I am also looking at ratio call spreads for the upcoming months, but will not be going into details in this post.

The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart)

These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

Disclosure: Long Sirius


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