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

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Playing the Correction Using Stock Options

It has been a scary ride down over the last 10 days but we cannot let fear overcome us. Yes the S&P 500 has corrected 6.6% from its closing high, but did we forget it rallied 70% from its closing low? I write today about using stock options to hedge your portfolio. Using options is considered to be expensive for some, but if you're like many Americans and you're stock portfolio is worth more than your house, ask yourself why you have home insurance and not portfolio insurance. I will outline a few ideas I have been using which I find work best and are the least expensive to hedge my portfolio, I am not telling you to go out and use these methods, but I have found them to hedge my portfolio greatly to the downside. If you are new to stock options and are interested in learning more about the strategies outlined in this post, risks, pricing, calculations, other strategies, and options in general, click here.

1. Selling Covered Calls - This is one of my favorite methods of protecting and is by far the most basic, safest, and cheapest method I'll outline today. If I own shares on an optionable stock, I can write one call contract for every 100 shares I own for a premium. This gives me the choice to sell the shares at a price I am willing to sell the stock at, and puts money in my portfolio at the same time. So I'll give an example on Apple (AAPL): With Apple trading just over 192 a share, I could be regretting not selling it at 200 a share. If that was me I would look to write out a February 200 strike call option against each 100 shares of Apple I owned. Using current market data, I could fetch $335 per option contract. If I wrote these shares out for 200 I would protect my position in Apple by 1.7% but I would also be obligated to sell Apple if the stock rose and closed above 200 per share on February 19, 2010 (February options expiration). If one anticipated a further decline in Apple shares there is always the option of writing a lower call contract closer to the current share price for a greater premium.
2. Selling Vertical Call Spreads - This is a bit more advanced but is another method I really enjoy using to hedge my portfolio. Instead of spending a lot of money on put options and having time as my enemy, I like selling call options and having time as my friend. After a large move higher is usually when I implement this strategy, but it can be done at any time. Using the S&P 500 SPDR (SPY) and the Proshares QQQ (QQQQ) I write near and out-of-money vertical call spreads. Allow me to show you with the following example using the SPY ETF: If I believe the market could decline a bit further I would look at selling near-the-money call options on the SPY and purchasing a higher strike call option against each to limit my risk. For example I could sell the February 108 call options and purchase the February 113 call options against them and receive a credit of $160 per spread. This would put $160 (minus commissions) into my account for every spread, and would be profitable as long as the S&P 500 didn't rise by more than 2.1% over the next 20 days. If the S&P rises by more than 2.1% this strategy would not be profitable, however assuming my portfolio will move higher with the S&P 500 this should not be to my disappointment. The maximum loss from each spread is $340 and that is if the S&P rises by 5.2% or more and closes at those levels on February options expiration. Everyone has different holdings, therefore everyone needs to hedge differently. Figuring out how much one should hedge requires extensive research, because nobody wants to be "over-hedged", and lose money if the market were to snap back and move higher.
3. Buying Longer Dated Put Options - This is my least favorite method of hedging, but is useful as it doesn't limit my gains like the previous example, however it also becomes more expensive in a rising volatility market and makes time my enemy. One of the most important things to remember when purchasing Put Options is to purchase Puts which have plenty of time left until they expire, this may seem more expensive but it is actually cheaper to buy a longer dated put than purchasing put options monthly. For example, I can purchase protection for over a third of one year looking ahead to the June options expiration. Using the S&P 500 SPDR (SPY) and current market data I can purchase the June 19, 2010 105 Put Options for $545 (plus commissions) per option contract. This would require an additional correction of 5.2% or greater just to break even after taking into account the premium paid, however profits can always be collected when one is convinced that the market is ready to move higher. This is where options with greater time until expiration come in handy, because if and when they are sold with greater than 60 days until expiration they'll still contain decent time premiums and won't decay as fast as options with shorter time until expiration.
   
   Let's say I was to purchase these put options and in 30 days I was convinced the market is ready to move higher so I'll sell some of my contracts, according to current market data and holding all values constant, this option would decay by $0.48 (48 cents) or 8.8% (compared to the February 105 put options which have $1.42 in time premium and will decay completely over the next 20 days), meaning I could still get $497 per option contract in time premium back at the time of sale. Of course this does not take into account any money that was gained or lost if the market moved lower or higher. If the market moved lower, according to current market data this would be profitable at the end of 30 days (taking into account time premium decay) if the S&P 500 moved lower by at least 1.2%. Remember price and time are not the only two metrics that could cause this option price to increase or decrease, so that should always be considered when purchasing options as well. Again, it is very important to conduct extensive research to determine how much would be an optimal hedging amount before doing so.

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 February AAPL 130 Put Options, Short February AAPL 190 Put Options, February 185 Put Options

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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

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.

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
Google	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

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.

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

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.

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

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.

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

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.

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

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

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