Volume Talks Wednesday March 10: Two Option Ideas on One Hot Stock

Today I am going to introduce my new breakout report which will also include stocks which traded the session lower 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/lower 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 26 stocks which traded higher on heavier volume, and 19 stocks which traded lower on heavier volume Wednesday March 10, 2010. Many times I find an option strategy I plan on opening if I am convinced some money can be made.

The tables below show the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). The first table is a list of potential bullish stocks, the second table is a list of potential bearish stocks. For your convenience I have ranked both tables in order from greatest to least volume % change.

Breakout Bulls on Heavier Volume
Company	Ticker	Price Change	Volume Change
Psychiatric Solutions, Inc.	(PSYS)	21.29%	1435.10%
Kinetic Concepts, Inc.	(KCI)	14.29%	1240.87%
Vanda Pharmaceuticals Inc.	(VNDA)	11.30%	610.19%
Evercore Partners Inc.	(EVR)	2.41%	586.03%
Harbin Electric, Inc.	(HRBN)	10.00%	558.51%
Aixtron AG	(AIXG)	7.27%	417.52%
Helix Energy Solutions Group Inc.	(HLX)	8.93%	371.88%
RadioShack Corporation	(RSH)	5.58%	290.62%
Rovi Corporation	(ROVI)	3.29%	277.25%
Micrel, Incorporated	(MCRL)	1.25%	163.32%
Universal Health Services, Inc.	(UHS)	2.98%	151.05%
Denbury Resources Inc.	(DNR)	4.02%	143.64%
Alaska Air Group, Inc.	(ALK)	5.64%	132.41%
Helen of Troy Limited	(HELE)	2.46%	123.50%
Newell Rubbermaid Inc.	(NWL)	2.07%	115.43%
Assured Guaranty Ltd.	(AGO)	8.01%	115.39%
Amylin Pharmaceuticals, Inc.	(AMLN)	6.47%	104.22%
Companhia Siderurgica Nacional	(SID)	2.11%	91.91%
The Boeing Company	(BA)	3.27%	81.41%
Valeant Pharmaceuticals International	(VRX)	1.78%	66.44%
OmniVision Technologies, Inc.	(OVTI)	4.34%	65.04%
Jo-Ann Stores, Inc.	(JAS)	1.83%	54.59%
Nordson Corporation	(NDSN)	1.87%	51.42%
MetLife, Inc.	(MET)	2.38%	50.80%
Power Integrations, Inc.	(POWI)	1.45%	50.72%
Breakout Bears on Heavier Volume
Company	Ticker	Price Change	Volume Change
Transatlantic Holdings, Inc.	(TRH)	-1.01%	938.92%
AboveNet, Inc.	(ABVT)	-12.19%	877.72%
The Boston Beer Company, Inc.	(SAM)	-3.17%	564.04%
J. Crew Group, Inc.	(JCG)	-4.32%	465.83%
AeroVironment, Inc.	(AVAV)	-3.11%	449.55%
Navistar International Corporation	(NAV)	-5.29%	420.91%
Collective Brands Inc.	(PSS)	-7.17%	364.99%
Smith & Nephew	(SNN)	-2.15%	336.74%
EQT Corporation	(EQT)	-5.68%	292.01%
DaVita Inc.	(DVA)	-2.54%	185.85%
VanceInfo Technologies Inc.	(VIT)	-4.40%	157.98%
RehabCare Group, Inc.	(RHB)	-2.26%	142.11%
Coca-Cola FEMSA, S.A.B. de C.V.	(KOF)	-1.00%	111.62%
International Speedway Corporation	(ISCA)	-3.06%	111.42%
Carrizo Oil & Gas, Inc.	(CRZO)	-2.34%	79.42%
Cummins Inc.	(CMI)	-1.47%	67.38%
Western Digital Corp.	(WDC)	-1.86%	56.64%
Landstar System, Inc.	(LSTR)	-1.32%	55.74%
Kohl's Corporation	(KSS)	-1.79%	53.49%

Out of the large list of stocks above one stock that caught my eye quickly from the bullish list was Nordson Corporation (NDSN). This stock has appeared several times in the past 2 weeks as it has been in a steady incline since it reported earnings on February 22, 2010. As always I will first give a company summary from Google (GOOG) Finance below.

Nordson Corporation is engaged in manufacturing of equipment used for precision material dispensing, testing and inspection, surface preparation and curing. The technology-based systems are found in the production facilities globally. It serves the markets, including the appliance, automotive, bookbinding, container, converting, electronics, food and beverage, furniture, life sciences, medical, metal finishing, nonwoven, packaging, semiconductor and solar energy industries. The equipment ranges from manual, stand-alone units for low-volume operations to microprocessor-based automated systems for high-speed, high-volume production lines. The Company operates in three business segments: Adhesive Dispensing Systems, Advanced Technology Systems and Industrial Coating Systems. In January 2010, the Company acquired German distributor GLT mbH based in Pforzheim, Germany.

This company is a real growth story, and one I certainly wouldn't mind betting on. The company is projected to grow FY 2010 earnings 49% over FY 2009, and another 26% in FY 2011.

Click chart to enlarge
As we can see from the chart above this stock is very strong, setting new 52 week highs everyday and judging by the top end of the bollinger band 73 doesn't seem impossible short-term. If I was only an equity trader, I definitely wouldn't short it here, but would actually consider getting long these shares and setting a tight trailing stop loss, however I am more of an options trader so I'll outline my plans below.

Nordson Corporation Vertical Call Spread Strategy: Sooner or later profits have to be taken, therefore I plan on waiting for a slight correction in this stock before structuring this trade. I would like to see the stock pull back to the 20 day moving average and support at around 65 per share on lighter volume and hold at least 2 days. If this occurs I would look at purchasing a 65 strike call option with at least 20 days until expiration and writing out a 70 strike call option against it. If the chart gives me a clear bullish sign and I am convinced Nordson will move higher in the days after the light volume test, I may choose to just purchase at-the-money call options and wait for a move higher to write out the higher strike call option for a greater premium.

Nordson Corporation Vertical Put Spread Strategy: As stated this stock may reach levels of 73 before profits start to be taken, therefore here is an idea that will return a very nice yield considering the risk in a very short time period. With the hovering on a strike price it is always a great idea to see what premiums can be made if the stock holds the current level or even continues higher. With the trend being up on this stock, I would look at selling near-the-money March Vertical Put Spreads. I would sell the March 70 put options and purchase the March 65 put options against them to limit my downside risk. As of current data this spread can be opened for a net credit of $95 or a 19% return on maintenance (less any commissions) in 9 calendar days.

Profit & Loss: The first strategy outlined is a scenario which accurate profit and loss cannot be determined, however the maximum loss will be limited to the price paid per option spread, and the maximum gain will be limited to $500 less the price of the spread. The second scenario is based on current data, therefore we can get a much more accurate profit and loss. Assuming this vertical put spread was opened for a net credit of $95, the maximum loss is limited to $405 per spread, and that is if Nordson sells off and closes at or below 65 a share on March options expiration (March 19). If Nordson moves higher, sideways, or lower-but by less than 11 cents a share by March options expiration this strategy will return the maximum profit of $95 per spread. It is also important to note that the break even point for this strategy is shares of Nordson at exactly 69.05 on March options expiration. Commissions are not taken into account for any of the profit and loss calculations.

Updates to Previous Posts:
As stated on my blog post here I thought ROVI corporation was an ideal stock to structure a synthetic stock position on for the March options expiration with two closes above 34.50. I updated that post here (where I informed readers to keep a close eye on Nordson) and said an ugly pattern had emerged and I would not get into Rovi until that patern had been voided. It was completely voided on March 2 and closed at 34.75. On March 3 ROVI was setting up to close its second day above 34.50 (closed at 34.63) and I entered into this trade near close. It has since rallied as much as 10.9% intraday. Although the chart still looks good and signals ROVI could move higher, the stock finished well off the highs sending me signal to lighten up on this position, therefore I closed two-thirds of my vertical put spread position on ROVI, as well as one-third of my March 35 Call Position on ROVI.

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 ROVI March 35 Call Options, Short ROVI March 35/30 Vertical Put Spread Sphere: Related Content

Tuesday's Hot Stocks: One Fahionable Option Trade

With the major indices trading slightly higher Tuesday, there were 28 stocks which broke higher on BIG 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 28 stocks, all of which traded higher on heavier volume Tuesday March 2, 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
RiskMetrics Group, Inc.	(RISK)	4.22%	708.32%
Sotheby's	(BID)	5.47%	398.03%
Sirius X M Radio, Inc.	(SIRI)	1.24%	389.34%
Domino's Pizza, Inc.	(DPZ)	5.10%	352.15%
The Dress Barn, Inc.	(DBRN)	4.35%	345.73%
Acxiom Corporation	(ACXM)	6.07%	343.50%
A. O. Smith Corporation	(AOS)	2.70%	248.57%
Rovi Corporation	(ROVI)	3.95%	234.36%
Power Integrations, Inc.	(POWI)	1.99%	210.19%
Green Mountain Coffee Roasters Inc.	(GMCR)	5.12%	207.96%
VeriFone Holdings, Inc.	(PAY)	4.77%	195.50%
VMware, Inc.	(VMW)	1.39%	182.60%
Medivation, Inc.	(MDVN)	5.17%	179.23%
Atheros Communications, Inc.	(ATHR)	3.11%	165.37%
J.C. Penney Company, Inc.	(JCP)	3.44%	153.81%
NBTY, Inc.	(NTY)	3.46%	143.64%
Albemarle Corporation	(ALB)	2.26%	141.47%
F5 Networks, Inc.	(FFIV)	2.47%	140.16%
Sirona Dental Systems, Inc.	(SIRO)	2.30%	124.33%
Hartford Financial Services	(HIG)	3.67%	109.34%
WebMD Health Corp.	(WBMD)	1.09%	107.75%
priceline.com Incorporated	(PCLN)	1.17%	103.15%
RINO International Corporation	(RINO)	7.29%	94.85%
Concho Resources Inc.	(CXO)	2.12%	84.46%
Steven Madden, Ltd.	(SHOO)	1.90%	78.74%
Jo-Ann Stores, Inc.	(JAS)	1.58%	66.80%
Smith International, Inc.	(SII)	2.40%	53.17%
Vale (ADR)	(VALE)	2.49%	51.69%

Out of the 28 stocks above, there are quite a few which I have already outlined potential option trades on in previous posts, therefore if you follow my posts you'll definitely want to see the update section below. Out of Tuesday's breakout stocks on big volume, one which I have been debating opening an option strategy on for some time is Steven Madden, Ltd. (SHOO), however at this point I believe the stock is overbought and I would like to wait for a pull back to get long. First I will give a company summary from Google (GOOG) Finance below.

Steven Madden, Ltd. designs, sources, markets and retails fashion-forward footwear for women, men and children. The Company also designs, sources, markets and retails name brand and private label fashion handbags and accessories through its Daniel M. Friedman Division. The Company distributes products through its retail stores, its e-commerce Website, department and specialty stores throughout the United States and through special distribution arrangements in Canada, Europe, Central and South America, Australia and Asia. Its business comprises three segments: Wholesale, Retail and First Cost. Steven Madden Retail, Inc., its wholly owned retail subsidiary, operates Steve Madden and Steven retail stores, as well as its e-commerce Website. Its wholly owned subsidiary, Adesso-Madden, Inc. acts as a buying agent for footwear products under private labels and licensed brands for many mass merchandisers and mid-tier department stores. In February 2010, the Company acquired Buddha, Inc.

Steven Madden (SHOO) reported earnings the morning of February 25, 2010, gapped higher and closed much lower (opened at 43.58, closed at 41.99; a rather bearish chart pattern and a potential reversal signal), the following day the stock traded in a big range (high of 42.94, and low of 41.23) but bulls managed to dominate and SHOO closed nearly unchanged, just 2 cents higher, SHOO seems to have regained its footing and on March 1 & 2 the stock has exploded to the upside on larger volume. As stated before, the day of earnings signaled a very ugly chart pattern to me, and I believe SHOO would have sold off if it was not helped by Deckers (DECK) reporting earnings the evening of February 25. As stated I believe SHOO is a bit overbought, but based on the current chart I certainly wouldn't short it here, so I will outline a potential option trade that will get me into the stock lower if SHOO sells off, but will allow me to participate in gains if the stock continues higher, sideways, or even lower by as much as 10% over the next 17 days.

Steven Madden Vertical Put Spread: As stated I wouldn't mind picking up shares of this stock if it traded lower, and based on the chart and bollinger bands I don't believe seeing the stock down near the 40-38 range is impossible. Instead of setting a limit order to purchase these shares, I have decided to sell March 40/35 vertical put spreads, that way if the stock continues higher I will also return slight gains, instead of just having a good until canceled limit order. Using current market data, this strategy could be opened for a net credit of $25 per spread or 5% return on maintenance (less any commissions) in 17 calendar days, but I plan on placing my order on weakness in the underlying to try and get a bit more premium than current levels.

Profit & Loss: Assuming I could open this option position for the prices outlined above, my maximum risk is limited to $475 per position, this will occur if SHOO sells off and closes on March options expiration at or below 35 per share. This position will achieve maximum profitability if SHOO closes above 40 per share on March options expiration (10.17% lower than Tuesday's close price), returning $25 profit per option spread (less any commissions). The break even point for this strategy is SHOO at 39.75 per share at March options expiration (less any commissions), anything below 39.75 per share at expiration will result in an unrealized loss on shares of SHOO (assuming the position is not closed and is exercised).

This should not be considered if you think the stock will sell off by more than 10% in the near future. However if you feel the stock could move higher or sideways 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.

Updates to Previous Posts:
First it is important to note that I traded entirely out of my China Agritech (CAGC) March Vertical Call Spread position Tuesday as I noticed immediate weakness following a huge gap higher at the open. It looks as if the daily chart is marked with a very ugly bearish engulfing candle pattern, and I would not want to be long this stock here.

Second I lightened up on my Sirona Dental (SIRO) position after witnessing the stock reverse off the higher end of the bollinger band near 38 per share. The chart still looks okay on Sirona, however this was my signal to lighten up.

Third, going way back to my Sirius (SIRI) buy-write option strategy outlined on February 2, 2010, I believe that identical strategy could be considered at these levels. Going into the close Tuesday, I purchased additional shares of Sirius as it looked like it had a reversal day and the short term bottom may be in (gapping lower at the open, trading as low as 82 cents, and finishing the day in positive territory; having its second highest volume day in the past 52 weeks, only to the day Sirius got booted from the Russel Index on June 26, 2009). I hope to write the shares out for the March options expiration on strength in Sirius, however I may have to write them out for April.

Last but not least another update to Rovi Corporation (ROVI). After outlining a bullish option strategy on February 24, I made an important update to the post on February 25 stating a very bearish pattern had emerged and it was likely to show some short term weakness. ROVI showed weakness the following three days, but finally broke out again Tuesday voiding that bearish chart pattern and actually setting a new 52 week high. I might reconsider opening the option strategy outlined in my post on ROVI, however I think I would rather purchase shares of the stock and set a tighter trailing stop loss, as ROVI has just been far too volatile lately.

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, SIRI, SIRO March 40 Call Options, SIRO April 25 Put Options, Short RINO March 20 Put Options, SIRI March 1 Call Options, SIRO April 30 Put Options Sphere: Related Content

Detailed Option Trade for a Potential Apple Reversal

Apple has been on a tear lately, up over 6% from the closing price Monday February 23. Judging by Tuesday's price action, I believe it may head a bit lower in the following sessions, and I have outlined an option strategy to capture a move lower below. First I must mention that I do not mind owning shares of Apple after options expiration, because the strategy outlined below does involve being naked one contract of Apple (AAPL), this means for each contract I am "naked" I could get 100 shares of Apple "put" to me.

Click chart to enlarge

As we can see from the chart above, Apple gapped higher to 209.93 per share at open Tuesday and closed below that price at 208.85, finishing the day down 0.14 points (14 cents). The volume was not huge, but greater than the previous two trading sessions. I believe Apple is heading lower short term based on this bearish looking pattern, but for confirmation I need to see Apple close lower on at least average volume Wednesday.

Apple Ratio Put Spread Option Strategy: With this pattern emerging, I decided to structure a ratio put spread on Apple. This is a fairly simple trade and only involves two different option legs for the same expiration. I first must state that I only anticipate short term weakness on Apple down to the 20 or 50 day moving averages before it consolidates and moves higher. With my short term price target being near 200 per share and the stock trading near 209 per share, that gives me all the info I'll need to structure this trade. First I purchased in-the-money March 210 strike put option contracts on Apple, then for each one (1) I purchased, I sold two (2) March 200 strike put options against them. I was able to open this spread for a net debit of $170 per ratio put spread. Using current market data as of close Tuesday the theoretical price for opening one of these spreads is roughly $195 per spread, which gives an extrinsic option premium to this spread of $80. Once opened it is very important to be monitoring this position, as I rarely wait until expiration day to close or let the position exercise, so a key support level to watch is 205. If Apple tests support near 205 per share and holds, I will look to be exiting this position, if it cannot hold the 205 level I will continue to hold it.

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 $195 per spread, this will occur if Apple trades higher and closes on March options expiration at or above 210 per share. This position will achieve maximum profitability if Apple closes exactly at 200 per share on March options expiration, returning 513% or $805 profit per option spread. This strategy has two break even points, one being Apple at 208.05 per share, and the other at 195.98 per share at expiration (less any commissions). Anything below 195.98 per share at expiration will result in an unrealized loss on shares of Apple (assuming the position is not closed and is exercised). It is important to note the net delta, gamma, and theta for this strategy as well, considering it may be a good idea to trade out of this spread before expiration. Based on current market data some important Greeks to note for this spread are Delta = -0.082, Gamma = 0.014, and Theta = -0.077.

This should not be considered if you think the stock will rally in the near future. However if you feel the stock could move lower but no lower than 4.23% 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 AAPL March 210 Put Options, Short AAPL March 200 Put Options

Sphere: Related Content

Monday's Hot Stocks: Charge Up Your Portfolio With Volterra

With the major indices starting off March with a bang Monday, there were plenty of stocks which traded higher on 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.

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%
Dillard's, Inc.	(DDS)	18.73%	420.81%
USEC Inc.	(USU)	20.64%	402.38%
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%
Pall Corporation	(PLL)	3.90%	242.46%
Radware Ltd.	(RDWR)	4.53%	202.75%
Pacer International, Inc.	(PACR)	13.07%	190.37%
Cantel Medical Corp.	(CMN)	5.22%	178.79%
Tuesday Morning Corporation	(TUES)	11.21%	167.25%
NBTY, Inc.	(NTY)	4.41%	165.91%
A. O. Smith Corporation	(AOS)	1.32%	144.08%
AboveNet, Inc.	(ABVT)	3.89%	127.93%
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%
Albemarle Corporation	(ALB)	5.20%	99.11%
NetLogic Microsystems, Inc.	(NETL)	3.03%	98.63%
SanDisk Corporation	(SNDK)	11.94%	92.14%
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%
priceline.com Incorporated	(PCLN)	5.22%	71.65%

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

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

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

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

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

Monday's Hot Stocks on BIG Volume: A Time to Get Sirius?

With the major indices trading higher Monday, there were many stocks which broke out to the upside on BIG 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 14 stocks, all of which traded higher on heavy volume Monday February 1, 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
Valassis Communications, Inc.	(VCI)	17.44%	756.14%
InterMune, Inc.	(ITMN)	5.70%	381.49%
Equifax Inc.	(EFX)	4.38%	236.21%
Gentex Corporation	(GNTX)	3.34%	233.54%
Sirius XM Radio Inc.	(SIRI)	4.64%	182.10%
Autoliv Inc.	(ALV)	10.96%	164.58%
Ashland Inc.	(ASH)	6.90%	115.80%
Tech Data Corporation	(TECD)	1.87%	95.57%
Pegasystems Inc.	(PEGA)	5.98%	89.53%
Albemarle Corporation	(ALB)	1.48%	84.68%
Mednax, Inc.	(MD)	1.18%	82.87%
Panera Bread Company	(PNRA)	2.83%	67.42%
The Cheesecake Factory	(CAKE)	4.30%	58.00%
The Talbots, Inc.	(TLB)	8.70%	36.45%

A stock that has been on a serious tear is Sirius XM Radio (SIRI). Over the past few sessions I have watched extremely high activity move into the $1 strike call options for March, June, September, and even February with just 19 days until expiration. Most of us know about Sirius XM, but as always before we get into the chart details, I will give a company profile from Google (GOOG) Finance below.

Sirius XM Radio Inc. has two principal wholly owned subsidiaries, XM Satellite Radio Holdings Inc. and Satellite CD Radio Inc. The Company is engaged in broadcasting in the United States, its music, sports, news, talk, entertainment, traffic and weather channels for a subscription fee through its satellite radio systems, the SIRIUS system and the XM system. On July 28, 2008, its wholly owned subsidiary, Vernon Merger Corporation, merged (the Merger) with and into XM Satellite Radio Holdings Inc. and, as a result, XM Satellite Radio Holdings Inc. became its wholly owned subsidiary. The SIRIUS system consists of three in-orbit satellites, approximately 120 terrestrial repeaters that receive and retransmit signals, satellite uplink facilities and studios. The XM system consists of four in-orbit satellites, over 700 terrestrial repeaters that receive and retransmit signals, satellite uplink facilities and studios.

Looking at the chart below, we can see that both price and volume have exploded as earnings are approaching. Could this bullish activity be signaling the first profitable quarter for Sirius? That I cannot answer and soon we'll see, however I added to my position Monday using the Buy/Write Option Strategy.

Click Chart to Enlarge
Sirius Option Trade: I don't usually like buying stocks before an earnings report, I'll usually just sell out of the money put spreads or sell out of the money call spreads, however I purchased shares Monday because I noticed that I could receive a nice premium for the March $1 strike call option contracts. I purchased shares Monday and wrote out one contract for every one hundred shares purchased. This is the simplest option trade to place and it is known as a Covered Call, covered meaning I own the shares to write. I was able to fill my order of SIRI quite easily for $0.85 (85 cents) per share, however it took me a bit longer to sell the options on those shares. I went in at the ask which was a dime or $10 per contract and I was totally filled within two hours. One problem to be aware of is that Sirius options are not as liquid as other high volume stocks, so it may be tough to get the entire order filled for the ask price. Once these calls were completely sold against my shares the adjusted cost per share became 75 cents (plus any commissions), therefore my position is now protected by 11.9% to the downside, however it also caps my return to 29.4%. This return would be great in just 47 days, but if SIRI moves lower or sideways until March options expiration and closes below $1 per share on expiration, I would have the underlying shares to write again for a different option expiration, lowering my cost basis even more.

Many people criticize this strategy because it limits the gains, however I entered into this trade hoping these shares would get called away at March expiration. This may not be the best strategy for individuals who want to be in the stock for the long-term or those who are very bullish and think this stock will go much higher than $1.

Profit & Loss: My maximum loss using current data is 75 cents per share, and that is if the stock trades to zero. If the stock continues higher and come March options expiration shares of SIRI are at or above 1 per share, this strategy will return $25 per covered call contract (29.4%). It is also important to note that the break even point for this strategy would be shares of SIRI at 0.75 on March options expiration, anything less would result in an unrealized loss and anything more would result in an unrealized gain on the shares of Sirius.

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 SIRI, Short SIRI March 1 Call Options

Sphere: Related Content