Sunday, January 17, 2010
Stock Option E-Book Update: Even Better & Easier To Understand Stock Options
I finished updating my two E-Books earlier this week and they have become easier than ever to understand. I have also partnered with OptionsXpress, which adds a lot of color, especially to the option chains listed throughout my books; they are much easier to understand now! I have also had my books published on the Amazon Kindle network if you're interested in downloading it to your kindle check out Understanding the Basics of Options - A Simplified Guide to Trading Stock Options (Kindle Edition) and Understanding Advanced Option Strategies - A Simplified Guide to Trading Stock Options (Kindle Edition). I am very excited for my new e-book releases and hope you all enjoy them. Anyone that has purchased E-Books in the past please email me with your Paypal transaction ID and I'll be more than happy to send you updated copies of my new E-Books absolutely free. If you're trying to learn about stock options these books will be a great read for this extended weekend. Thanks again to everyone, enjoy your long weekend!
Sphere: Related Content
Friday, January 15, 2010
25 High Yielding Option Write Ideas for January's Option Expiration Friday
In this post I will outline 25 stocks which will return high one day returns using the buy write option strategy. This post assumes the underlying security will be at or above the indicated strike price at market close. First and foremost It is very important to write the shares out as early as possible as volatility rushes into the market in the morning, and not wait for it to start decreasing rapidly in the afternoon. It's not too late to get premium out of many of these stocks, and writing them for just a day decreases risk greatly. I will look to be purchasing some of the stocks mentioned below during pre-market or near market open to write out within an hour of the opening bell. I don't mind holding any of these stocks long which is why I'll be using this strategy today. If I get called out I won't mind because I'll still make money. Below is the list of stocks, the potential return if exercised, and downside protection if they do not get exercised. To learn more about the buy/write option strategy, risks, pricing, calculations, other strategies, and options in general, click here.
Note that higher beta securities return higher percentages due to their levels of implied volatility, and because they are more risky.
To understand the table, I will give a detailed example of Option Maestro favorite Suntech Power (STP) below.
Sell the at-the-money STP January 16 strike call option. The premium received from the call option would give a downside protection of 2.18%. If the stock closes above 16 at the end of trade including post-market trade (it will get assigned) today the total return from this position would be 1.62% in just 6.5 trading hours.
I have ranked the stocks in the table below in order from greatest to least protection (note that most of these stocks with greater protection have less return, as they are deeper in the money or have less volatility than others listed). I have also calculated the group average return and protection which is the very bottom row of the table in green. The data listed in red bold represents greater than the group average.
From the table above I will be looking to pick up shares of Suntech Power (STP), A123 Systems (AONE), and First Solar (FSLR) (for a one day option write). If these shares close below the strike I may end up with them and I don't mind as I'll take them into my portfiolio. Individual stocks may not return as much as some of the double and triple leveraged ETF's. For example If I was bullish on the financial sector, I may not mind holding the Direxion Daily 3X Bull (FAS) (short-term of course as these shares don't make good investment vehicles), I would choose to purchase the stock pre-market and write out call options at open. If I was more bearish on the financials I may look at purchasing the Direxion Daily 3X Bear (FAZ) and write at-the-money calls out on it. Be sure to check out other leveraged ETF's for similar strategies such as: SSO, SDS, UCO, UYM, UYG, SKF, TNA, TZA, BGU, BGZ, ERX, ERY, and many others.
To better understand options in general, including this strategy, these percentage calculations, and other option strategies please check out my Simplified Stock Option Trading E-Books. As a shareholder of many of the stocks listed above in the past, I've written them out for a variety of strikes for the January options expiration, as the volatility of the underlying stock gives a very nice premium, even on out of the money options.
The list above are stocks which I wouldn't mind holding in my portfolio if they did not get exercised at expiration. These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.
This is an ideal strategy to open long positions when the market has rallied as much as it has. This strategy will give protection if the market sells off, as well as provide a return if the market continues to rally. If the stock is not assigned, this strategy is a great way to create additional income for your portfolio. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here). Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position.
Disclosure:Long AXP, GOOG January 2011 300 Calls, GS January 2011 100 Calls, TXT February 23 Calls, Short AA January 15 Puts, AXP January 44 Calls, AXP January 37.5 Puts, RIMM January 66.62 Puts, STP January 15 Puts, Sphere: Related Content
Note that higher beta securities return higher percentages due to their levels of implied volatility, and because they are more risky.
To understand the table, I will give a detailed example of Option Maestro favorite Suntech Power (STP) below.
Sell the at-the-money STP January 16 strike call option. The premium received from the call option would give a downside protection of 2.18%. If the stock closes above 16 at the end of trade including post-market trade (it will get assigned) today the total return from this position would be 1.62% in just 6.5 trading hours.
I have ranked the stocks in the table below in order from greatest to least protection (note that most of these stocks with greater protection have less return, as they are deeper in the money or have less volatility than others listed). I have also calculated the group average return and protection which is the very bottom row of the table in green. The data listed in red bold represents greater than the group average.
| Company | Ticker | Strike | Potential Return % | Protection % |
| A123 Systems | AONE | 20 | 1.47 | 3.43 |
| Textron | TXT | 22.5 | 1.14 | 2.41 |
| Suntech Power | STP | 16 | 1.62 | 2.18 |
| Rambus | RMBS | 21 | 1.28 | 2.08 |
| Dow Chemical | DOW | 30 | 0.33 | 2.06 |
| First Solar | FSLR | 125 | 2.17 | 2.04 |
| Baidu | BIDU | 460 | 0.79 | 1.70 |
| Direxion Daily Financial Bull 3X ETF | FAS | 86 | 2.38 | 1.70 |
| JP Morgan | JPM | 45 | 1.95 | 1.25 |
| Potash | POT | 115 | 0.86 | 1.13 |
| American Express | AXP | 43 | 1.76 | 1.01 |
| Wells Fargo & Company | WFC | 29 | 1.03 | 1.00 |
| MasterCard | MA | 260 | 0.55 | 0.73 |
| Research in Motion | RIMM | 66.62 | 0.77 | 0.66 |
| Las Vegas Sands | LVS | 19 | 2.52 | 0.64 |
| Illumina, Inc. | ILMN | 40 | 3.13 | 0.64 |
| Cisco | CSCO | 25 | 0.84 | 0.60 |
| Goldcorp | GG | 41 | 1.48 | 0.49 |
| GOOG | 590 | 0.50 | 0.47 | |
| Alcoa | AA | 16 | 1.64 | 0.44 |
| Apple | AAPL | 210 | 0.69 | 0.42 |
| Dendreon | DNDN | 30 | 1.83 | 0.41 |
| Goldman Sachs | GS | 170 | 1.26 | 0.39 |
| Caterpillar | CAT | 62.5 | 1.05 | 0.21 |
| Amazon | AMZN | 130 | 2.27 | 0.19 |
| 1.41 | 1.13 |
From the table above I will be looking to pick up shares of Suntech Power (STP), A123 Systems (AONE), and First Solar (FSLR) (for a one day option write). If these shares close below the strike I may end up with them and I don't mind as I'll take them into my portfiolio. Individual stocks may not return as much as some of the double and triple leveraged ETF's. For example If I was bullish on the financial sector, I may not mind holding the Direxion Daily 3X Bull (FAS) (short-term of course as these shares don't make good investment vehicles), I would choose to purchase the stock pre-market and write out call options at open. If I was more bearish on the financials I may look at purchasing the Direxion Daily 3X Bear (FAZ) and write at-the-money calls out on it. Be sure to check out other leveraged ETF's for similar strategies such as: SSO, SDS, UCO, UYM, UYG, SKF, TNA, TZA, BGU, BGZ, ERX, ERY, and many others.
To better understand options in general, including this strategy, these percentage calculations, and other option strategies please check out my Simplified Stock Option Trading E-Books. As a shareholder of many of the stocks listed above in the past, I've written them out for a variety of strikes for the January options expiration, as the volatility of the underlying stock gives a very nice premium, even on out of the money options.
The list above are stocks which I wouldn't mind holding in my portfolio if they did not get exercised at expiration. These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.
This is an ideal strategy to open long positions when the market has rallied as much as it has. This strategy will give protection if the market sells off, as well as provide a return if the market continues to rally. If the stock is not assigned, this strategy is a great way to create additional income for your portfolio. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here). Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position.
Disclosure:Long AXP, GOOG January 2011 300 Calls, GS January 2011 100 Calls, TXT February 23 Calls, Short AA January 15 Puts, AXP January 44 Calls, AXP January 37.5 Puts, RIMM January 66.62 Puts, STP January 15 Puts, Sphere: Related Content
Thursday, January 14, 2010
Wednesday's Hot Stocks: Finding A Rose Among Many Thorns
With the major indices ticking slightly higher Wednesday, 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 27 stocks, all of which traded higher on heavy volume Wednesday January 13, 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.
One stock from the list above which really caught my attention during trade Wednesday is Rosetta Resources Inc. (ROSE). All of the listed February call contracts seemed to be getting some heavy action Wednesday with the February 22.50 strike (highest contract available) trading almost 1000% of the open interest (179 contracts traded on open interest of 18). However before we get into the chart details, I will give a company profile from Google (GOOG) Finance below.
Click chart to enlarge
ROSE Option Trade: As stated earlier I will be monitoring the chart to see if the stock can pull back on lighter volume and hold the 20 level. If it can, I would look to open Diagonal Call Spreads. Two major reasons I chose to structure this trade with this stock are: 1) I expect oil and gas to tick significantly higher by spring 2010, and 2) with volatility near 20 month lows I believe it is a great time to be buying some longer dated call contracts.
To begin this trade I would first purchase April 20 strike call options. This would give me the rights to this stock at 20 per share for just over three months, and being a small cap stock I believe it will outperform larger cap oil and gas stocks, if commodities really start to heat up by early spring. Using current data these calls are roughly $270 per option contract. I would then look to write out shorter dated higher strike calls against them to lower my cost basis. Looking ahead to February options, I could fetch $100 per contract for the 22.50 strike. This would lower my cost basis by 37%, however it would limit my return to 47% if assigned at February expiration. This would be great, but if ROSE moves lower or sideways until February options expiration and closes below 22.50 per share on expiration, I would have the underlying contracts to write again for the March expiration lowering my cost basis even more. I will continue to write shorter dated and higher strike call options against the April 20 calls until April options expiration, I get assigned, or I cannot receive premiums (in the case that the stock sells off significantly). The data used is for example purpose and will not be accurate if shares of ROSE reach my ideal entry point. If shares fall to my entry point near 20 per share, premiums for all call contracts will reflect it and become cheaper.
Profit & Loss: The maximum loss per spread using current data is $170, even if the stock trades to zero. If the stock continues higher and come February options expiration shares of ROSE are at or above 22.50 per share, this strategy will return $80 per option spread (47%). It is also important to note that the break even point for this strategy would be shares of ROSE at 21.70 on February options expiration, anything less would result in an unrealized loss for the April contracts and anything more would result in an unrealized gain for the April contracts.
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: No Positions Sphere: Related Content
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 27 stocks, all of which traded higher on heavy volume Wednesday January 13, 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 |
| Amtech Systems, Inc. | (ASYS) | 22.13% | 1548.45% |
| Xyratex Ltd. | (XRTX) | 11.74% | 928.47% |
| Baidu, Inc. | (BIDU) | 13.71% | 726.42% |
| Nektar Therapeutics | (NKTR) | 13.51% | 558.04% |
| RXi Pharmaceuticals Corporation | (RXII) | 9.23% | 429.87% |
| interCLICK Inc | (ICLK) | 9.83% | 358.92% |
| Triumph Group, Inc. | (TGI) | 8.32% | 352.40% |
| Covance Inc. | (CVD) | 4.67% | 293.23% |
| Charles River Laboratories | (CRL) | 6.14% | 242.71% |
| Vital Images, Inc. | (VTAL) | 7.85% | 231.57% |
| Super Micro Computer, Inc. | (SMCI) | 12.38% | 218.35% |
| Websense Inc. | (WBSN) | 6.19% | 202.68% |
| Cytori Therapeutics Inc. | (CYTX) | 13.57% | 198.91% |
| Sony Corporation | (SNE) | 5.04% | 195.74% |
| Sotheby's | (BID) | 8.65% | 146.74% |
| Community Health Systems | (CYH) | 7.31% | 137.01% |
| IESI BFC Ltd | (BIN) | 2.06% | 117.87% |
| China Agritech Inc. | (CAGC) | 6.42% | 117.68% |
| Schiff Nutrition International Inc. | (WNI) | 4.42% | 104.95% |
| NewMarket Corporation | (NEU) | 1.31% | 101.35% |
| EnerNOC, Inc. | (ENOC) | 7.72% | 85.52% |
| Apogee Enterprises, Inc. | (APOG) | 4.32% | 82.65% |
| iShares Dow Jones US Pharm Index | (IHE) | 1.65% | 77.53% |
| Vitacost.com, Inc. | (VITC) | 3.86% | 59.97% |
| Rosetta Resources Inc. | (ROSE) | 4.39% | 33.17% |
| Green Mountain Coffee Roasters Inc. | (GMCR) | 6.29% | 26.55% |
| Apple Inc. | (AAPL) | 1.41% | 23.89% |
One stock from the list above which really caught my attention during trade Wednesday is Rosetta Resources Inc. (ROSE). All of the listed February call contracts seemed to be getting some heavy action Wednesday with the February 22.50 strike (highest contract available) trading almost 1000% of the open interest (179 contracts traded on open interest of 18). However before we get into the chart details, I will give a company profile from Google (GOOG) Finance below.
Rosetta Resources Inc. together with its subsidiaries (Rosetta) is an independent oil and gas company engaged in the acquisition, exploration, development and production of oil and gas properties in North America. The Company’s operations are concentrated in the areas of the Sacramento Basin of California, the Rockies, and South Texas. In addition, Rosetta has non-core positions in the State Waters of Texas and the Gulf of Mexico. During the year ended December 31, 2008, the Company drilled 184 gross and 152 net wells, with a success rate of 89%. In 2008, the Company had 398.2 billion of cubic feet equivalents (Bcfe) of proved oil and natural gas reserves, including 376.5 billion cubic feet (Bcf) of natural gas and 3,603 million barrels (MBbls) of oil and condensate.By glancing at the chart I believe this stock is a bit overextended to the upside so I would like to get into this on weakness. Shares of ROSE made a new 52 week high Wednesday and closed just 11 cents below it, a rather bullish sign. I am considering opening the following option trade on ROSE below, but I'd like to see it test minor support levels near 20 on lighter volume first.
Click chart to enlarge
ROSE Option Trade: As stated earlier I will be monitoring the chart to see if the stock can pull back on lighter volume and hold the 20 level. If it can, I would look to open Diagonal Call Spreads. Two major reasons I chose to structure this trade with this stock are: 1) I expect oil and gas to tick significantly higher by spring 2010, and 2) with volatility near 20 month lows I believe it is a great time to be buying some longer dated call contracts.To begin this trade I would first purchase April 20 strike call options. This would give me the rights to this stock at 20 per share for just over three months, and being a small cap stock I believe it will outperform larger cap oil and gas stocks, if commodities really start to heat up by early spring. Using current data these calls are roughly $270 per option contract. I would then look to write out shorter dated higher strike calls against them to lower my cost basis. Looking ahead to February options, I could fetch $100 per contract for the 22.50 strike. This would lower my cost basis by 37%, however it would limit my return to 47% if assigned at February expiration. This would be great, but if ROSE moves lower or sideways until February options expiration and closes below 22.50 per share on expiration, I would have the underlying contracts to write again for the March expiration lowering my cost basis even more. I will continue to write shorter dated and higher strike call options against the April 20 calls until April options expiration, I get assigned, or I cannot receive premiums (in the case that the stock sells off significantly). The data used is for example purpose and will not be accurate if shares of ROSE reach my ideal entry point. If shares fall to my entry point near 20 per share, premiums for all call contracts will reflect it and become cheaper.
Profit & Loss: The maximum loss per spread using current data is $170, even if the stock trades to zero. If the stock continues higher and come February options expiration shares of ROSE are at or above 22.50 per share, this strategy will return $80 per option spread (47%). It is also important to note that the break even point for this strategy would be shares of ROSE at 21.70 on February options expiration, anything less would result in an unrealized loss for the April contracts and anything more would result in an unrealized gain for the April contracts.
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: No Positions Sphere: Related Content
Wednesday, January 13, 2010
Tuesday's Breakout Stocks: Pumping up Your Portfolio with NBTY
With the market taking a hit today on the back of a weak Alcoa (AA) earnings report, there were several stocks which fought the trend and finished 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 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 17 stocks, all of which traded higher on heavy volume Tuesday January 12, 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.
One stock from the list above which was also included in a similar list from January 5, 2010 is NBTY, Inc. (NTY) Before getting into the chart details, I will give a company profile from Google (GOOG) Finance below.
Click to enlarge
NBTY Option Trade: As stated previously I will be monitoring the chart to see if the stock can continue and close higher. If it can hold these levels I would be a buyer of February Vertical Call Spreads. This is a rather simple trade to open and only requires the use of two separate option contracts. I would be a buyer of the February 45 call options and a seller of the February 50 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 February options and current market data the spread could be opened for a net debit of $170 per option spread. I believe this stock has serious momentum and could set new 52 week highs in the coming month.
Profit & Loss: The maximum loss per spread using current data is $170, even if the stock trades to zero. If the stock continues higher and come February options expiration shares of NTY are at or above 50 per share, this strategy will return maximum profitability or $330 per option spread (194%). It is important to note that I will not be waiting for expiration to take profits if NTY moves higher, I will look to be taking profits at any point depending on share price and the number of days left until expiration. It is also very important to know that the break even point for this strategy would be shares of NTY at 46.70 on February options expiration.
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: No Positions Sphere: Related Content
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 17 stocks, all of which traded higher on heavy volume Tuesday January 12, 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 |
| Sorl Auto Parts, Inc | (SORL) | 17.31% | 511.37% |
| Illumina, Inc. | (ILMN) | 15.82% | 441.68% |
| The Cheesecake Factory | (CAKE) | 5.79% | 220.00% |
| Amylin Pharmaceuticals | (AMLN) | 1.40% | 211.27% |
| Charles River Laboratories | (CRL) | 3.63% | 186.19% |
| MicroStrategy | (MSTR) | 9.69% | 149.00% |
| NBTY, Inc. | (NTY) | 1.21% | 49.00% |
| Big Lots, Inc. | (BIG) | 1.75% | 43.00% |
One stock from the list above which was also included in a similar list from January 5, 2010 is NBTY, Inc. (NTY) Before getting into the chart details, I will give a company profile from Google (GOOG) Finance below.
NBTY, Inc. (NBTY) is a vertically integrated manufacturer, marketer and retailer of a line of nutritional supplements in the United States and throughout the world. The Company markets approximately 25,000 products under numerous brands, including Nature’s Bounty, Ester-C, Solgar, MET-Rx, American Health, Osteo Bi-Flex, Flex-A-Min, SISU, Knox, Sundown, Rexall, Pure Protein, Body Fortress, WORLDWIDE Sport Nutrition, Natural Wealth, Puritan's Pride, Holland & Barrett, GNC (UK), Physiologics, Le Naturiste, De Tuinen, Julian Graves and Vitamin World. The Company’s vertical integration includes the purchase of raw materials, formulating and manufacturing products, which it markets through the four channels of distribution: Wholesale/United States Nutrition, North American Retail, European Retail and Direct Response/E-Commerce. During the fiscal year ended September 30, 2009 (fiscal 2009), the Company manufactured approximately 90% of the nutritional supplements it sold.By glancing at the chart we can see NTY closed at a new 52 week high on above average volume, a rather bullish sign. This stock broke and closed above levels of resistance around 44, so it looks as if shares of NTY could be poised for a move higher, or GET PUMPED UP (pun intended). I am considering opening the following option trade on NBTY below, but I'll first need to see it make a new closing high Wednesday.
Click to enlarge
NBTY Option Trade: As stated previously I will be monitoring the chart to see if the stock can continue and close higher. If it can hold these levels I would be a buyer of February Vertical Call Spreads. This is a rather simple trade to open and only requires the use of two separate option contracts. I would be a buyer of the February 45 call options and a seller of the February 50 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 February options and current market data the spread could be opened for a net debit of $170 per option spread. I believe this stock has serious momentum and could set new 52 week highs in the coming month.
Profit & Loss: The maximum loss per spread using current data is $170, even if the stock trades to zero. If the stock continues higher and come February options expiration shares of NTY are at or above 50 per share, this strategy will return maximum profitability or $330 per option spread (194%). It is important to note that I will not be waiting for expiration to take profits if NTY moves higher, I will look to be taking profits at any point depending on share price and the number of days left until expiration. It is also very important to know that the break even point for this strategy would be shares of NTY at 46.70 on February options expiration.
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: No Positions Sphere: Related Content
Friday, January 8, 2010
Thursday's Hot Stocks: Selling Time on Valeant Pharmaceuticals
With the major indices trading mixed Thursday, there were several stocks which broke out to the upside on BIG volume. 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 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 17 stocks, all of which traded higher on heavy volume Thursday. However I will only write 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.
From the list above there are two stocks which I have noticed appearing on similar lists lately, one is Valeant Pharmaceuticals (VRX) and the other is Ulta Salon, Cosmetics & Fragrance (ULTA), and I am bullish on both. ULTA was red hot in Q4 of 2009 and looks like it could continue, but currently there aren't any options offered on this stock, so by default I will be writing about Valeant.
Click to enlarge
Valeant Option Trade: VRX broke out Wednesday and continued the trend Thursday. I believe VRX is a little overbought short term, so I would like to see some consolidation before jumping in. Friday's unemployment data will likely influence this stock as it will have a major impact on the overall market, so if this stock shows weakness on the back of that data, I believe it could be a good opportunity to get in. It is also important to note that Valeant will be hosting a conference call at 9 AM Friday to announce 2010 financial guidance, this may also affect the stock during trade Friday. If a sell off does occur, I would need to see this stock hold support near 31. My ideal entry point is below 32 a share, and I would look to structure a Vertical Call Spread position for the February expiration if it neared that price. Using current market data I could open a 32.50/35 February vertical call spread for roughly $140 per spread. This position would make time my friend, as this spread would put me into VRX for 33.90 a share (64 cents below Thursday's close). Of course if I waited until my entry point near 32 a share I would be paying a premium on the shares, but my potential return would increase, and my risk would also decrease. If I become more conservative on VRX, I would likely look to structure a 30/32.50 vertical call spread for February; this would give me a near 30% gain in 43 days as long as the stock holds above 32.50 (5.9% lower than Thursday's close).
Profit & Loss: The maximum loss per spread using current data is $140 per vertical call spread, even if the stock trades to zero. If the stock continues higher and closes on February options expiration above 35 a share, this strategy will return maximum profitability or $110 (a gain of 73.3%). The break even point for this strategy would be shares of VRX at 33.90 on February options expiration.
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 SQM Sphere: Related Content
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 |
| Ulta Salon, Cosmetics & Fragrance | (ULTA) | 8.53% | 470.91% |
| Fastenal Company | (FAST) | 1.71% | 152.57% |
| Sociedad Quimica y Minera | (SQM) | 5.42% | 144.25% |
| Clean Energy Fuels Corp. | (CLNE) | 4.62% | 114.78% |
| M.D.C. Holdings, Inc. | (MDC) | 4.60% | 106.75% |
| Valeant Pharmaceuticals | (VRX) | 4.22% | 92.55% |
| The Stanley Works | (SWK) | 3.52% | 92.24% |
| MSCI Inc. | (MXB) | 6.88% | 84.46% |
| The Dress Barn, Inc. | (DBRN) | 2.15% | 67.55% |
| Community Health Systems | (CYH) | 1.72% | 67.43% |
| Humana Inc. | (HUM) | 4.65% | 65.44% |
| Liberty Global Inc. | (LBTYA) | 0.00% | 59.03% |
| The Talbots, Inc. | (TLB) | 3.65% | 46.14% |
| World Acceptance Corp. | (WRLD) | 2.29% | 45.18% |
| Westport Innovations Inc. (USA) | (WPRT) | -0.66% | 32.45% |
| Schweitzer-Mauduit International | (SWM) | 1.82% | 27.48% |
| NII Holdings, Inc. | (NIHD) | 4.25% | 25.98% |
| WellCare Health Plans, Inc. | (WCG) | 1.39% | 24.45% |
From the list above there are two stocks which I have noticed appearing on similar lists lately, one is Valeant Pharmaceuticals (VRX) and the other is Ulta Salon, Cosmetics & Fragrance (ULTA), and I am bullish on both. ULTA was red hot in Q4 of 2009 and looks like it could continue, but currently there aren't any options offered on this stock, so by default I will be writing about Valeant.
Click to enlarge
Valeant Option Trade: VRX broke out Wednesday and continued the trend Thursday. I believe VRX is a little overbought short term, so I would like to see some consolidation before jumping in. Friday's unemployment data will likely influence this stock as it will have a major impact on the overall market, so if this stock shows weakness on the back of that data, I believe it could be a good opportunity to get in. It is also important to note that Valeant will be hosting a conference call at 9 AM Friday to announce 2010 financial guidance, this may also affect the stock during trade Friday. If a sell off does occur, I would need to see this stock hold support near 31. My ideal entry point is below 32 a share, and I would look to structure a Vertical Call Spread position for the February expiration if it neared that price. Using current market data I could open a 32.50/35 February vertical call spread for roughly $140 per spread. This position would make time my friend, as this spread would put me into VRX for 33.90 a share (64 cents below Thursday's close). Of course if I waited until my entry point near 32 a share I would be paying a premium on the shares, but my potential return would increase, and my risk would also decrease. If I become more conservative on VRX, I would likely look to structure a 30/32.50 vertical call spread for February; this would give me a near 30% gain in 43 days as long as the stock holds above 32.50 (5.9% lower than Thursday's close).Profit & Loss: The maximum loss per spread using current data is $140 per vertical call spread, even if the stock trades to zero. If the stock continues higher and closes on February options expiration above 35 a share, this strategy will return maximum profitability or $110 (a gain of 73.3%). The break even point for this strategy would be shares of VRX at 33.90 on February options expiration.
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 SQM Sphere: Related Content
Thursday, January 7, 2010
Wednesday's Hot Stocks: Palm Option Trade Ahead of CES 2010
First and foremost, I hope everyone had a wonderful year end to 2009. I am finally back to writing after an extremely busy year end, and I must say it feels good! So on with my first post of 2010...
With the major indices trading flat Wednesday, there were a ton of stocks which hit my screener trading higher on heavy volume. As always, 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, especially with larger lists like this one). 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 take a look at the chart(s) to see if I can structure a potential option trade. The list in this post is huge and includes 50 stocks, all of which traded higher on heavy volume Wednesday. However I will only write 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.
There are quite a few familiar stocks from the list above which isn't unusual because there are so many listed, but the one which I will be writing a detailed option strategy about today is Palm (PALM). It was a year ago when Palm revealed the Palm Pre smartphone and WebOS at the Consumer Electronics Show and took the near $3 stock to well over $15 a share by the its release in June. It is very unlikely that Palm's stock will have the same reaction, but with shares of Palm breaking above some minor resistance levels the past couple days and some positive notes (such as Palm phones coming soon to the Verizon (VZ) network) from CES 21010, I believe Palm could continue rallying until resistance near the 12.50 level.
Click to enlarge
Palm Option Trade: I would like to see Palm fill the gap from mid December (roughly 11.50) before I jump in, but with CES 2010 starting today it may be a good time to take advantage of increased levels of volatility and sell some premium in the options market. I would do this by opening January Vertical Put Spreads. This is a rather simple trade to open and only requires the use of two separate option contracts. I would be a seller of the January 11 put options and a buyer of the January 10 put options (1 for 1). This spread would put me in the market for just 9 days, and time would certainly be my friend. Using current market data the spread could be opened for a net credit of $27 per spread or 27% return taking into account maintenance requirements.
Profit & Loss: The maximum loss per spread using current data is $63, even if the stock trades to zero. If the stock continues higher, sideways, or even as much as 2% lower, this strategy will return maximum profitability or the credit received of $27 per spread. The break even point for this strategy would be shares of PALM at 10.63 at January options expiration.
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: No Positions Sphere: Related Content
With the major indices trading flat Wednesday, there were a ton of stocks which hit my screener trading higher on heavy volume. As always, 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, especially with larger lists like this one). 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 take a look at the chart(s) to see if I can structure a potential option trade. The list in this post is huge and includes 50 stocks, all of which traded higher on heavy volume Wednesday. However I will only write 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 |
| T A S E R International | (TASR) | 24.26% | 1639.31% |
| Ticketmaster | (TKTM) | 4.53% | 734.66% |
| Warren Resources | (WRES) | 4.42% | 578.23% |
| China Education Alliance | (CEU) | 10.91% | 481.63% |
| Worthington Industries | (WOR) | 20.53% | 449.81% |
| Stillwater Mining | (SWC) | 16.57% | 429.69% |
| Solarfun Pwr Hldgs | (SOLF) | 13.39% | 373.16% |
| Vanceinfo Tech | (VIT) | 4.60% | 358.01% |
| Fastenal | (FAST) | 6.60% | 344.07% |
| China Transinfo Tech | (CTFO) | 12.08% | 339.20% |
| Dexm | (DXCM) | 2.99% | 337.21% |
| Ngas Resources | (NGAS) | 7.85% | 322.78% |
| Live Nation | (LYV) | 6.42% | 320.72% |
| Westport Innovations | (WPRT) | 5.77% | 309.27% |
| Clean Energy Fuels | (CLNE) | 7.99% | 308.79% |
| Metali | (MEA) | 10.44% | 305.63% |
| Kraft Foods | (KFT) | 0.70% | 302.19% |
| Atmel | (ATML) | 3.22% | 262.59% |
| Istar Financial | (SFI) | 6.87% | 259.54% |
| Renesola | (SOL) | 11.81% | 252.83% |
| China Marine Food Group | (CMFO) | 9.47% | 242.62% |
| Sono Products | (SON) | 1.94% | 215.30% |
| Aixtron A G | (AIXG) | 4.71% | 213.73% |
| Titanium Metals | (TIE) | 7.62% | 208.14% |
| Provid Energy Trust | (PVX) | 6.12% | 197.43% |
| Aine Glbl Premier Ppty | (AWP) | 2.19% | 194.70% |
| Kulicke & Soffa Ind | (KLIC) | 10.95% | 191.60% |
| Boise | (BZ) | 8.44% | 177.08% |
| Diebold | (DBD) | 4.95% | 174.68% |
| Valeant Pharmaceut | (VRX) | 5.17% | 168.76% |
| Atlas Pipeline | (APL) | 6.48% | 165.39% |
| U S Energy Wyoming | (USEG) | 9.56% | 161.40% |
| Smartheat | (HEAT) | 7.08% | 145.88% |
| Liberty Global | (LBTYA) | 5.82% | 140.76% |
| Equinix | (EQIX) | 0.91% | 130.37% |
| M D C Holdings | (MDC) | 3.31% | 119.78% |
| Palm | (PALM) | 6.45% | 106.63% |
| Dr Reddys Labs | (RDY) | 3.40% | 106.54% |
| Cree | (CREE) | 4.14% | 105.13% |
| Talbots | (TLB) | 9.45% | 80.70% |
| Smart Modular Tech | (SMOD) | 8.51% | 69.75% |
| Sandisk | (SNDK) | 2.75% | 47.58% |
| Stanley Works | (SWK) | 2.51% | 44.37% |
| Steven Madden Limited | (SHOO) | 2.31% | 35.25% |
| Baidu | (BIDU) | 1.63% | 32.91% |
| Lululemon Athletica | (LULU) | 2.10% | 31.91% |
| Jinpan International | (JST) | 2.42% | 29.10% |
| M & F Worldwide | (MFW) | 2.38% | 28.81% |
| Schweitzer Mauduit | (SWM) | 4.12% | 21.78% |
| nsol Energy | (CNX) | 3.32% | 19.71% |
There are quite a few familiar stocks from the list above which isn't unusual because there are so many listed, but the one which I will be writing a detailed option strategy about today is Palm (PALM). It was a year ago when Palm revealed the Palm Pre smartphone and WebOS at the Consumer Electronics Show and took the near $3 stock to well over $15 a share by the its release in June. It is very unlikely that Palm's stock will have the same reaction, but with shares of Palm breaking above some minor resistance levels the past couple days and some positive notes (such as Palm phones coming soon to the Verizon (VZ) network) from CES 21010, I believe Palm could continue rallying until resistance near the 12.50 level.
Click to enlarge
Palm Option Trade: I would like to see Palm fill the gap from mid December (roughly 11.50) before I jump in, but with CES 2010 starting today it may be a good time to take advantage of increased levels of volatility and sell some premium in the options market. I would do this by opening January Vertical Put Spreads. This is a rather simple trade to open and only requires the use of two separate option contracts. I would be a seller of the January 11 put options and a buyer of the January 10 put options (1 for 1). This spread would put me in the market for just 9 days, and time would certainly be my friend. Using current market data the spread could be opened for a net credit of $27 per spread or 27% return taking into account maintenance requirements.Profit & Loss: The maximum loss per spread using current data is $63, even if the stock trades to zero. If the stock continues higher, sideways, or even as much as 2% lower, this strategy will return maximum profitability or the credit received of $27 per spread. The break even point for this strategy would be shares of PALM at 10.63 at January options expiration.
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: No Positions Sphere: Related Content
Friday, December 25, 2009
Happy Holidays to All
Happy holidays to all! I hope everything is going well for all of you. I will return to normal blogging the week of January 3, 2010. Hope trading has been very profitable, only 4 days left to trade so good luck! I expect a slow week in the markets, so it may be a good time to check out my option trading guides if you are new to options!
Sphere: Related Content
Tuesday, December 15, 2009
Will Return to Blogging Soon!
Hey guys sorry I haven't been updating my blog lately. I have been extremely busy with my retail cheese website for the holiday season. I will return shortly. Happy trading!
Sphere: Related Content
Friday, December 4, 2009
Volume Talks: Thursday's Hot Stocks on Heavy Volume & Detailed Vertical Put Spread Option Trade
With the major indices trading lower Thursday, there were 15 stocks which hit my screener fighting the trend on heavy volume. As always, the first thing I do is scan the list for familiar names, such as stocks 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, especially with larger lists). 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 take a look at the chart(s) to see if I can structure a potential option trade. In this post I will name 15 stocks, but only write about one in detail 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.
Update: First I will take a minute to write a quick update on a trade idea blogged about on November 19, 2009. A-Power (APWR) had a nice move higher after they reported earnings. As indicated the levels of volatility would collapse after earnings were reported (Thursday). This position was opened on Wednesday for a net credit of $120 and closed Thursday for a net debit of $35. I took profits in my vertical put spread position on strength in the underlying and IV collapse. I will continue to take profits closer to the expiration.
One stock from the list above which was also included in Tuesday's list is Gafisa SA (GFA). Before getting into the chart details, I will give a company profile from Google (GOOG) Finance below.
Click to enlarge
Gafisa SA Option Trade: On any weakness in the underlying I would be monitoring the chart to see if the stock bounces off the 50 or 100 day moving average and ultimately holds the $33 level. If it can hold these levels I would be selling Vertical Put Spreads. This is a rather simple trade to open and only requires the use of two separate option contracts. I would be a seller of the December 35 put options and a buyer of the December 30 put options (1 for 1). If the stock trades lower the put spread will give me a larger net credit (put more money in my portfolio) but will have a lower probability of achieving maximum profitability. If the stock can hold the $35 level and move higher, I would also be a seller of this same spread, however the spread will give me a smaller net credit (put less money in my portfolio), but will also have a greater probability of achieving maximum profitability. Using December options and current market data the spread could be opened for a net credit of $120 or 24% return taking into account maintenance requirements. I believe this stock has the chance of clearing the 52 week high which was set in mid October. Depending on how this stock trades over the next few days, I may choose to finance December or January 40 strike call options with the cash received. This will lower my maximum profit a bit but give me unlimited gains if GFA trades much higher.
Profit & Loss: The maximum loss per spread using current data is $380, even if the stock trades to zero. If the stock continues higher or even sideways and come December options expiration shares of GFA are at or above current levels of 35, this strategy will return maximum profitability or the credit received of $120 per spread. The break even point for this strategy would be shares of GFA at 33.80 at December options expiration.
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 December APWR 12.50 Puts, Short December APWR 15 Puts
Sphere: Related Content
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 |
| Almaden Minerals Ltd. | (AAU) | 18.75% | 1414.74% |
| Energy Recovery, Inc. | (ERII) | 11.40% | 613.56% |
| Rambus Inc. | (RMBS) | 8.88% | 346.07% |
| A-Power Energy Generation | (APWR) | 4.16% | 264.85% |
| GSI Commerce, Inc. | (GSIC) | 2.69% | 240.94% |
| Comcast Corporation | (CMCSA) | 6.49% | 222.56% |
| G-III Apparel Group, Ltd. | (GIII) | 7.29% | 205.89% |
| athenahealth, Inc | (ATHN) | 4.03% | 191.79% |
| VisionChina Media Inc | (VISN) | 11.74% | 179.10% |
| Micron Technology, Inc. | (MU) | 2.57% | 159.90% |
| Frontier Communications Corp | (FTR) | 1.95% | 149.38% |
| Gafisa SA | (GFA) | 3.67% | 95.65% |
| Lumber Liquidators, Inc. | (LL) | 2.10% | 68.19% |
| Telvent Git, S.A | (TLVT) | 2.97% | 49.85% |
| Progress Energy, Inc. | (PGN) | 1.17% | 42.79% |
| E-House Holdings Limited | (EJ) | 4.66% | 28.73% |
Update: First I will take a minute to write a quick update on a trade idea blogged about on November 19, 2009. A-Power (APWR) had a nice move higher after they reported earnings. As indicated the levels of volatility would collapse after earnings were reported (Thursday). This position was opened on Wednesday for a net credit of $120 and closed Thursday for a net debit of $35. I took profits in my vertical put spread position on strength in the underlying and IV collapse. I will continue to take profits closer to the expiration.
One stock from the list above which was also included in Tuesday's list is Gafisa SA (GFA). Before getting into the chart details, I will give a company profile from Google (GOOG) Finance below.
Gafisa SA (Gafisa) is a Brazil-based company engaged in homebuilding and real estate operations. Its core business is the development of residential buildings. It is also engaged in the development of land subdivisions, also known as residential communities, and entry-level housing. In addition, it provides construction services to third parties. Gafisa is present in 18 states and 40 cities and works on all residential segments together with its extensions: Alphaville Urbanismo SA, Fit Residencial Empreendimentos Imobiliarios Ltda and Bairro Novo Empreendimentos Imobiliarios SA. Gafisa also owns such subsidiaries as Cipesa Holding, Gafisa SPE 22 Ltda and Res. das Palmeiras SPE Ltda, among others. During the year ended December 31, 2008, the Company acquired Tenda.By glancing at the chart, we can see the stock closed on a minor resistance level Thursday. We can also notice that there is an emerging bullish rising wedge. Depending on how the market reacts to the unemployment situation will most likely set the tone for this stock during trade Friday. If this stock trades lower in the near future it is key that it holds the 33 per share level. If this stock can trade higher and close from Thursday's 35 a share mark, I will look to open the option trade discussed below. Note that many of the stocks listed above will be good plays and many will be bad plays, I list them all to show possible breakout stocks and write about a few of the ones I am interested in trading.
Click to enlarge
Gafisa SA Option Trade: On any weakness in the underlying I would be monitoring the chart to see if the stock bounces off the 50 or 100 day moving average and ultimately holds the $33 level. If it can hold these levels I would be selling Vertical Put Spreads. This is a rather simple trade to open and only requires the use of two separate option contracts. I would be a seller of the December 35 put options and a buyer of the December 30 put options (1 for 1). If the stock trades lower the put spread will give me a larger net credit (put more money in my portfolio) but will have a lower probability of achieving maximum profitability. If the stock can hold the $35 level and move higher, I would also be a seller of this same spread, however the spread will give me a smaller net credit (put less money in my portfolio), but will also have a greater probability of achieving maximum profitability. Using December options and current market data the spread could be opened for a net credit of $120 or 24% return taking into account maintenance requirements. I believe this stock has the chance of clearing the 52 week high which was set in mid October. Depending on how this stock trades over the next few days, I may choose to finance December or January 40 strike call options with the cash received. This will lower my maximum profit a bit but give me unlimited gains if GFA trades much higher.Profit & Loss: The maximum loss per spread using current data is $380, even if the stock trades to zero. If the stock continues higher or even sideways and come December options expiration shares of GFA are at or above current levels of 35, this strategy will return maximum profitability or the credit received of $120 per spread. The break even point for this strategy would be shares of GFA at 33.80 at December options expiration.
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 December APWR 12.50 Puts, Short December APWR 15 Puts
Sphere: Related Content
Thursday, December 3, 2009
Volume Talks: Wednesday's Hot Stocks on Heavy Volume & Detailed Option Trade
With the major indices trading mixed Wednesday, there were many stocks which traded higher on BIG volume. The list described below is a large one which is quite unusual for a rather flat trading day. As always, the first thing I do is scan the list for familiar names, such as stocks 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, especially with larger lists). 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 take a look at the chart(s) to see if I can structure a potential option trade. In this post I will name 39 stocks, but only write about one in detail 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 here.
The table below shows the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). For your convenience I have ranked the stocks in order from greatest to least volume % change.
UPDATE: First I will take a minute to write an update about three stocks outlined in previous blog posts that appeared in the list above. Today I closed my earnings option trade on SIRO (Check out trade idea here) which was just opened Tuesday. I also closed many of my short vertical put spreads on ASIA (Check out trade idea here), but kept the 30 strike calls as I will be looking to sell some of them on continued strength in the underlying. I was also out taking more profits in my MELI vertical call spread position (Check out trade idea here). I took profits today to realize a profit even if MELI expires worthless, but I strongly believe we could see MELI above 55 by expiration. Therefore I plan on keeping the remainder of my December 50/55 vertical call spread position on the table as I believe this strategy could achieve maximum profitability.
One stock from the list above I recognized from a previous breakout list is Lihir Gold Limited (LIHR). This stock first appeared after hitting similar levels in my blog post from November 24. Before getting into the chart details, I will give a company profile from Google (GOOG) Finance below.
Lihir Gold Limited Option Trade: As stated I would like to see this stock break above 35 a share on above average volume. The stock traded to a new 52 week high of 35.06 Wednesday before settling slightly lower. If it breaks above and holds I would look at opening Vertical Call Spreads. This is a very easy trade to open and only requires the use of two separate option contracts. As the stock trades higher the call spread will become a bit more expensive but give a higher probability of becoming profitable. For an example I'll use December options and current market data. I would open this trade a bit differently than other vertical call spreads blogged about in the past. I would simply purchase December 35 strike call contracts and sell the December 40 strike call options against them (1 for 1); however I would purchase the 35 strike calls and wait for continued strength in the underlying before I write the 40 strike calls out (this way the 40 strike calls bring larger premiums). This is because currently the December 40 calls wouldn't make a big difference in the cost of the spread. However if the stock continues higher after the 35 strike calls are purchased, writing the 40 calls could lower the cost significantly, or depending on the time until expiration I may just close the 35 strike calls for a profit. I believe if and when this stock can close above 35 a share it is a bullish sign and there will be continued strength. The December 35 strike calls can currently be purchased for $130 per option contract, making a spread would lower the cost to $120.
Profit & Loss: The maximum loss per spread is the price paid or $120, even if the stock trades to zero. If the stock continues higher and come December options expiration shares of LIHR are at or above 40, this strategy will return maximum profitability of $380 per spread or 317%. The break even point for this strategy would be shares of LIHR at 36.20 at December options expiration.
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 December ASIA 22.50 Puts, December ASIA 30 Calls, Short December ASIA 25 Puts, December MELI 55 Calls
Sphere: Related Content
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 here.
The table below shows the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). For your convenience I have ranked the stocks in order from greatest to least volume % change.
| Company | Ticker | Price Change | Volume Change |
| Lihua International, Inc. | (LIWA) | 33.54% | 869.35% |
| BioFuel Energy Corp. | (BIOF) | 34.21% | 786.94% |
| China Agritech Inc. | (CAGC) | 17.63% | 778.49% |
| Alcon, Inc. | (ACL) | 5.57% | 630.53% |
| Alexco Resource Corp. | (AXU) | 16.92% | 551.51% |
| China Marine Food Group | (CMFO) | 7.36% | 458.91% |
| Claude Resources Inc. | (CGR) | 20.91% | 457.78% |
| Keryx Biopharmaceuticals | (KERX) | 13.96% | 451.29% |
| Northern Dynasty Minerals Ltd. | (NAK) | 9.97% | 416.82% |
| Curis, Inc. | (CRIS) | 12.78% | 372.10% |
| Telestone Technologies Corporation | (TSTC) | 10.39% | 354.05% |
| G-III Apparel Group, Ltd. | (GIII) | 5.89% | 341.59% |
| DreamWorks Animation SKG, Inc. | (DWA) | 9.71% | 328.31% |
| KMG Chemicals, Inc. | (KMGB) | 3.44% | 274.66% |
| P.F. Chang's China Bistro | (PFCB) | 9.27% | 256.17% |
| Sirona Dental Systems, Inc. | (SIRO) | 5.97% | 248.89% |
| Duoyuan Global Water Inc | (DGW) | 4.10% | 192.68% |
| BPZ Resources, Inc. | (BPZ) | 9.14% | 158.69% |
| NovaGold Resources Inc. | (NG) | 8.88% | 142.56% |
| Copart, Inc. | (CPRT) | 8.79% | 119.30% |
| UAL Corporation | (UAUA) | 12.47% | 98.14% |
| Encore Capital Group, Inc. | (ECPG) | 4.06% | 94.38% |
| Pepco Holdings, Inc. | (POM) | 1.07% | 82.74% |
| Ulta Salon, Cosmetics & Fragrance, Inc. | (ULTA) | 4.12% | 65.64% |
| MercadoLibre, Inc. | (MELI) | 4.45% | 65.37% |
| Jos. A. Bank Clothiers, Inc. | (JOSB) | 2.62% | 64.42% |
| TNS, Inc. | (TNS) | 5.38% | 57.85% |
| Iowa Telecom Services | (IWA) | 2.05% | 52.41% |
| The Warnaco Group, Inc. | (WRC) | 2.38% | 51.94% |
| Warner Chilcott Plc | (WCRX) | 1.96% | 48.27% |
| AsiaInfo Holdings, Inc. | (ASIA) | 6.21% | 44.80% |
| Coca-Cola FEMSA, S.A.B. de C.V. | (KOF) | 1.15% | 43.30% |
| Interoil Corp | (IOC) | 3.34% | 37.93% |
| NutriSystem Inc. | (NTRI) | 1.14% | 37.58% |
| Blue Nile, Inc. | (NILE) | 1.94% | 36.49% |
| Lihir Gold Limited | (LIHR) | 1.88% | 30.04% |
| SanDisk Corporation | (SNDK) | 3.50% | 23.79% |
| Catalyst Health Sltns | (CHSI) | 2.36% | 21.62% |
| Amazon.com, Inc. | (AMZN) | 2.71% | 21.44% |
UPDATE: First I will take a minute to write an update about three stocks outlined in previous blog posts that appeared in the list above. Today I closed my earnings option trade on SIRO (Check out trade idea here) which was just opened Tuesday. I also closed many of my short vertical put spreads on ASIA (Check out trade idea here), but kept the 30 strike calls as I will be looking to sell some of them on continued strength in the underlying. I was also out taking more profits in my MELI vertical call spread position (Check out trade idea here). I took profits today to realize a profit even if MELI expires worthless, but I strongly believe we could see MELI above 55 by expiration. Therefore I plan on keeping the remainder of my December 50/55 vertical call spread position on the table as I believe this strategy could achieve maximum profitability.
One stock from the list above I recognized from a previous breakout list is Lihir Gold Limited (LIHR). This stock first appeared after hitting similar levels in my blog post from November 24. Before getting into the chart details, I will give a company profile from Google (GOOG) Finance below.
Lihir Gold Limited (LGL) is engaged in gold mining and processing operations on Lihir Island in Papua New Guinea, at Ballarat in Victoria, Australia, at Mount Rawdon in Queensland, Australia and Bonikro in Cote d’Ivoire, West Africa. It is also engaged in exploring in Côte d’Ivoire, where it has over 20,000 square kilometers of exploration licenses either granted or under application in the Birimian greenstone belts. The Ballarat operation comprises four granted mining licenses, aggregating to an area of 22.1 kilometer, and a single granted exploration license comprising a semi-contiguous area of 126 kilometer all granted in the state of Victoria, Australia. All tenements are held 100% by Ballarat Goldfields. The Mount Rawdon operation comprises 12 mining licenses covering 39.6 kilometer. It maintains six exploration permits for minerals (EPMs) surrounding the Mount Rawdon mine site. The Bonikro operation is located on an exploitation permit granted by the government of Cote d’Ivoire.It is clear there has been some momentum behind this stock lately, but by glancing at the chart there seems to be some resistance near 35 a share. It traded near 35 a share on November 24 and 25, before selling off severely with the rest of the market on what I call Red Friday (Black Friday). I need to see this stock trade and close above 35 a share before I would become a buyer. I am very bullish on the entire precious metal sector right now as I believe gold will continue to trade higher until the fed at least hints at a rate hike. Note that many of the stocks listed above will be good plays and many will be bad plays, I list them all to show possible breakout stocks and write about a few of the ones I am interested in trading.
Lihir Gold Limited Option Trade: As stated I would like to see this stock break above 35 a share on above average volume. The stock traded to a new 52 week high of 35.06 Wednesday before settling slightly lower. If it breaks above and holds I would look at opening Vertical Call Spreads. This is a very easy trade to open and only requires the use of two separate option contracts. As the stock trades higher the call spread will become a bit more expensive but give a higher probability of becoming profitable. For an example I'll use December options and current market data. I would open this trade a bit differently than other vertical call spreads blogged about in the past. I would simply purchase December 35 strike call contracts and sell the December 40 strike call options against them (1 for 1); however I would purchase the 35 strike calls and wait for continued strength in the underlying before I write the 40 strike calls out (this way the 40 strike calls bring larger premiums). This is because currently the December 40 calls wouldn't make a big difference in the cost of the spread. However if the stock continues higher after the 35 strike calls are purchased, writing the 40 calls could lower the cost significantly, or depending on the time until expiration I may just close the 35 strike calls for a profit. I believe if and when this stock can close above 35 a share it is a bullish sign and there will be continued strength. The December 35 strike calls can currently be purchased for $130 per option contract, making a spread would lower the cost to $120.Profit & Loss: The maximum loss per spread is the price paid or $120, even if the stock trades to zero. If the stock continues higher and come December options expiration shares of LIHR are at or above 40, this strategy will return maximum profitability of $380 per spread or 317%. The break even point for this strategy would be shares of LIHR at 36.20 at December options expiration.
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 December ASIA 22.50 Puts, December ASIA 30 Calls, Short December ASIA 25 Puts, December MELI 55 Calls
Sphere: Related Content
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