Today will be extremely volatile and I don't underestimate a 500 point range! Keep in mind that close is king and the level to watch on the SPY is 108.46. A Similar level on the QQQQ is 44.76, but it did not test February closing lows at open.
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Friday, May 21, 2010
Potential Reversal in the Works?
Traders, I am showing you a quick chart of the S&P SPDR (SPY). We opened near the February closing lows retracing 100% of the move. Now we need to reverse higher and a close above 108.46 on the SPY would be short term bullish and would signal a potential reversal. Of course the day is far from over, and I need to see volume take out the 647 million shares traded on the "flash crash" day, but at very least Thursday's volume. Below is the chart I have as of 10 AM.
Today will be extremely volatile and I don't underestimate a 500 point range! Keep in mind that close is king and the level to watch on the SPY is 108.46. A Similar level on the QQQQ is 44.76, but it did not test February closing lows at open.
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Today will be extremely volatile and I don't underestimate a 500 point range! Keep in mind that close is king and the level to watch on the SPY is 108.46. A Similar level on the QQQQ is 44.76, but it did not test February closing lows at open.
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Thursday, May 20, 2010
Why Investor's Should Make Friends with Fear
In this post I will give some advice on why I believe investor's should become friends with fear, and explain how it can be done using stock options. I'm certain many of you already know how the markets gauge fear, but for those of you who don't, a simple way to see how fearful the markets are is an indicator called the Volatility Index [VIX]. The entry symbol to track the VIX is different in almost every brokerage I use, so a sure and easy way to track it is the Ipath S&P 500 VIX Short Term ETN (VXX).
Historically anything above 30 on the Volatility Index is high and signals increased levels of fear in the markets, but for those tracking market volatility using the VXX it looks to be the 24-25 level.
So why should investor's make friends with fear? First it is very important to note that fear is friendly only to an investor which is well educated in stock options. Why? A major factor in pricing an option premium (or contract price) is volatility. Keeping all other things constant, higher volatility = higher premium. This means investor's can sell premiums to cost average down a position, or what I like doing in times of market correction... Selling "naked puts" to get into shares I don't mind owning.
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With the VIX soaring to new 52 week highs in the past week, I have been selling premiums on out of the money options on stocks which I wouldn't mind owning. I do have to note that in my last post How I'm Buying Into the Market Correction I closed almost all of the positions the following trading day which was Monday May 10, 2010, even after stating I had sold the puts as an investment and not a trade, but a move of 400+ on the Dow signaled TAKE PROFITS and easy ones were taken. With just 2 trading days left until May options expire there is still some "juice" left in many stocks which I wouldn't mind owning if they were put to me Friday. Below is a list of stocks I am looking at selling puts on, the strike prices, and the per contract premium I would receive as of close Wednesday May 19, 2010.
*Indicates June options expiration.
Before selling any puts naked, I always make sure I have enough cash to purchase the shares. I won't be in any rush to sell premiums Thursday because as of 2 AM (EST) futures are slightly under pressure, but once I get the feel of the market I will begin selling premiums on many of the stocks/ETFs outlined in the table above. It is also possible (and likely with the high volatility) that I will be adjusting strike prices according to the market.
The ideas outlined above are bullish strategies 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 or slightly lower in the near future, this strategy could yield a nice gain. Selling puts "naked" is a very risky strategy and should not be considered with stocks one does not plan or want to hold long in their portfolio. To get a better understanding of stock options and different option strategies please check out my Simplified Stock Option Trading E-Books.
| Company/ETF | Ticker | Strike | Premium | Adjusted Price |
| SPDR Dow Jones Industrial Average ETF | (DIA) | 100 | $20 | $99.80 |
| SPDR S&P 500 ETF | (SPY) | 107 | $24 | $106.76 |
| PowerShares QQQ Trust, ETF | (QQQQ) | 44 | $8 | $43.92 |
| United States Oil Fund LP ETF | (USO) | 33 | $33 | $32.67 |
| Financial SPDR ETF | (XLF) | 14 | $4 | $13.96 |
| Technology SPDR ETF | (XLK) | 21 | $5 | $20.95 |
| SPDR S&P Metals and Mining ETF | (XME) | 48 | $30 | $47.70 |
| Apple Inc. | (AAPL) | 230 | $20 | $229.80 |
| American Express Company | (AXP) | 39 | $30 | $38.70 |
| Bank of America Corporation | (BAC) | 15 | $4 | $14.96 |
| Citigroup Inc. | (C) * | 3 | $4 | $2.96 |
| Caterpillar Inc. | (CAT) | 57.5 | $26 | $57.24 |
| Cisco Systems, Inc. | (CSCO) | 24 | $18 | $23.82 |
| Ford Motor Company | (F) | 11 | $7 | $10.93 |
| General Electric Company | (GE) | 17 | $13 | $16.87 |
| Corning Incorporated | (GLW) | 17 | $11 | $16.89 |
| Google Inc. | (GOOG) | 460 | $40 | $459.60 |
| Goldman Sachs Group, Inc. | (GS) | 130 | $25 | $129.75 |
| Intel Corporation | (INTC) | 21 | $10 | $20.90 |
| The Coca-Cola Company | (KO) | 50 | $4 | $49.96 |
| Pfizer Inc. | (PFE) | 15 | $3 | $14.97 |
| QUALCOMM, Inc. | (QCOM) | 35 | $10 | $34.90 |
| Sirius XM Radio | (SIRI) * | 1 | $5 | $0.95 |
| Visa Inc. | (V) | 70 | $72 | $69.28 |
*Indicates June options expiration.
Before selling any puts naked, I always make sure I have enough cash to purchase the shares. I won't be in any rush to sell premiums Thursday because as of 2 AM (EST) futures are slightly under pressure, but once I get the feel of the market I will begin selling premiums on many of the stocks/ETFs outlined in the table above. It is also possible (and likely with the high volatility) that I will be adjusting strike prices according to the market.
The ideas outlined above are bullish strategies 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 or slightly lower in the near future, this strategy could yield a nice gain. Selling puts "naked" is a very risky strategy and should not be considered with stocks one does not plan or want to hold long in their portfolio. 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.
In conclusion I wanted to briefly explain to investor's that something good can be made of fear. Remember fear or volatility brings increased option premiums, therefore if shares fall and are put to an investor on May options expiration, volatility will likely increase or stay the same and option premiums will still be high for June options expiration. Therefore June call options can be written against the shares to sell them at a specific price for an increased option premium as well... But that's an article for another day.
Disclosure: Long BAC, C, F, QCOM, V, GOOG January 300 Calls, Short SIRI June 1 Puts
Monday, May 10, 2010
How I'm Buying Into the Market Correction
A wise man once said "be fearful when others are greedy and greedy when others are fearful" and this can't be more true in the world of derivatives. When fear or Volatility increases in the market, option premiums soar and easy money can be made. In this post I will explain how I am taking advantage of the increased levels of fear in the market to make some money. First, I'll give a quick fact... The S&P 500 is down about 9% from the high on April 26, and the Volatility Index (VIX) has soared almost 240% in that same period. As I stated money can easily be made selling option premium, but it can also be lost just as easy. However I'm a bit more conservative and I choose to sell put options 5% - 10% lower on stocks or market ETF's I'm willing to take shares of. This is the reason I hold a ton of cash on the sidelines at all times so I can take the shares if I am wrong without going into margin. I began selling put options on stocks and ETF's I am willing to take shares of on Friday, after realizing the SPY bounced off of the 200 day moving average. I mainly sold put options on companies which have been beaten up after good earnings, but also sold put options on a few of my favorite companies. I have put (no pun intended) together a short list of stocks below which I have sold puts on, or will be selling puts on in the week ahead for the May options expiration. The data below is as of market close Friday May 7, 2010.
The ideas outlined above are bullish strategies 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 or slightly lower in the near future, this strategy could yield a nice gain. Selling puts "naked" is a very risky strategy and should not be considered with stocks one does not plan or want to hold long in their portfolio. To get a better understanding of stock options and different option strategies please check out my Simplified Stock Option Trading E-Books.
| Company/ETF | Ticker | Strike | Premium | Adjusted Price |
| SPDR Dow Jones Industrial Average ETF | (DIA) | 99 | $150 | 97.50 |
| SPDR S&P 500 ETF | (SPY) | 106 | $190 | 104.10 |
| PowerShares QQQ Trust, ETF | (QQQQ) | 43 | $73 | 42.27 |
| United States Oil Fund LP ETF | (USO) | 35 | $76 | 34.24 |
| SPDR S&P Metals and Mining ETF | (XME) | 49 | $135 | 47.65 |
| Apple Inc. | (AAPL) | 210 | $240 | 207.60 |
| American Express Company | (AXP) | 37 | $67 | 36.33 |
| Bank of America Corporation | (BAC) | 15 | $40 | 14.60 |
| Citigroup Inc. | (C) | 3 | $2 | 2.98 |
| Ford Motor Company | (F) | 11 | $34 | 10.66 |
| General Electric Company | (GE) | 15 | $21 | 14.79 |
| Corning Incorporated | (GLW) | 16 | $21 | 15.79 |
| Google Inc. | (GOOG) | 450 | $410 | 445.90 |
| QUALCOMM, Inc. | (QCOM) | 33 | $25 | 32.75 |
| Visa Inc. | (V) | 75 | $55 | 74.45 |
The ideas outlined above are bullish strategies 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 or slightly lower in the near future, this strategy could yield a nice gain. Selling puts "naked" is a very risky strategy and should not be considered with stocks one does not plan or want to hold long in their portfolio. 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: Short May AAPL 220 Put Options, AXP 38 Put Options, BAC 16 Put Options, F 12 & 13 Put Options, GLW 16 & 18 Put Options, GOOG 450 & 510 Put Options, QCOM 36 & 38 Put Options, V 75 Put Options, XME 50 Put Options
Sunday, May 2, 2010
How I'm Playing Qualcomm
I know it's been a while since I've posted on my blog, but I have been extremely busy with my business. However, I wanted to write a quick post about Qualcomm (QCOM), as I am very confident about an option strategy which I will detail later in this post. First I will note that in my early days as an investor I got BURNED buying shares of Qualcomm and vowed never to purchase or play the stock ever again. It was close to the turn of the new millennium and Qualcomm was really heating up, hitting new highs daily, so I had to jump on the bandwagon. But as we all know nothing lasts forever and "down she came" in the first 6 months of 2000. I didn't jump ship though hoping it would come back, after all many of my other stocks were picking up the slack. But again, nothing lasts forever and the entire market underwent the tech bubble burst. Between Qualcomm and a few other high flying tech stocks such as Corning (GLW) my portfolio dropped over 90% from the peak in 2000 to year end 2001. A painful lesson, but one of the most valuable lessons I've ever learned. Enough about the past though, time to look at the present.
As stated I vowed never to play Qualcomm again, but a lot changes in ten years and a company can go from highly speculative to highly valuable, and in my opinion Qualcomm is highly valuable, and has become even more valuable after selling off over 10% since earnings. I would like to accumulate shares of QCOM on weakness not only because they are presently a smart, safe, and sound company, but looking to the future projected earnings put a forward PE of around 15 on this company, not to mention if and when a device similar to the iPhone from Apple (AAPL) comes to Verizon (VZ), Qualcomm will benefit greatly.
Click chart to enlarge
However I do not want to catch a falling knife because I feel more downside is likely, especially if the market heads lower. It is also worth noting that QCOM formed a bearish engulfing candle pattern on Friday, a potential signal of short-term weakness in the stock, which makes the following option strategy all the more attractive.
Qualcomm Option Strategies: First I'll state that this option strategy may strike you as bearish, and it is, but just for a short time (which is the reason I stated it will benefit from the bearish candle pattern short-term). Overall it is bullish as I am willing to take shares of the stock if it reaches a certain price. I am currently looking to open positions on both the May and June options expiration (half of my desired shares for each expiration). It looks like Qualcomm is trying to form a base around 38 per share, so I will use that as my first level of support. Additional levels of support come in around 37 and 35.50.
May Expiration Strategy: I will structure a ratio put spread using these levels of support. First I'll look to purchase May 38 strike put option contracts, and against each of these contracts I am long, I will sell two May 37 strike put option contracts. This can all be done for a theoretical net credit of $8. This means I receive $8 cash for every one of these positions I am long. For example, If I am willing to get long 500 shares of Qualcomm, I will purchase 5 of the May 38 put contracts, and sell 10 of the May 37 put contracts.
May P&L Info: If Qualcomm closes at or above 38 per share on May options expiration (May 21, 2010) and assuming this strategy is left open, this strategy will return the net credit of $8 per position (less any commissions). If Qualcomm closes at or below 37 per share at expiration and assuming the strategy is left open, this strategy will be profitable down to the break even point of 35.92 per share, but will result in purchasing 100 shares of Qualcomm at 37 for each ratio spread position. The profit max for this strategy at expiration is shares of Qualcomm at exactly 37 per share, which would result in a profit of $108 per ratio position.
June Expiration Strategy: I will employ the same option strategy but slightly different strike prices. I will look to purchase June 37 put contracts and sell two June 36 put contracts against each contract I am long. I decided to structure the June option strategy for a slight lower entry level in case Qualcomm sells off beyond our lowest level of support listed, not to mention I don't like entering shares of any stock all at once (or for the same price). This strategy can be done for a theoretical net credit of $39 per spread.
June P&L Info: If Qualcomm closes at or above 37 per share on June options expiration (June 18, 2010) and assuming this strategy is left open, this strategy will return the net credit of $39 per position (less any commissions). If Qualcomm closes at or below 36 per share at expiration and assuming the strategy is left open, this strategy will be profitable down to the break even point of 34.61 per share, but will result in purchasing 100 shares of Qualcomm at 36 for each ratio spread position. The profit max for this strategy at expiration is shares of Qualcomm at 36 per share, which would result in a profit of $139 per ratio position.
The ideas outlined above are bullish strategies 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.
The ideas outlined above are bullish strategies 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 AAPL May 220 Put Options, GLW May 19 Put Options, QCOM, Short AAPL May 230 Put Options, GLW May 20 Put Options
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Tuesday, April 6, 2010
Monday's Hot Stocks on Heavier Volume
Today's breakout report is for Monday April 5, 2010. If this is your first time reading one of my breakout reports you'll want to read the section below, however if you are familiar with my daily breakout report you should skip ahead to the list of stocks.
To reiterate previous blog posts like this, the first thing I do is scan the list for familiar names, such as stocks I am quite familiar with or ones which have appeared on similar scans multiple times in the past week or two (most of these names are unfamiliar so it saves a lot of time). This indicates there may be some real momentum behind the stock, and that it could trade higher/lower in following sessions as well. Then (if and when any of the stocks I find are familiar to me), I make sure the stock has options available to trade, and then take a look at the chart(s) to see if I can structure a potential option trade. The list in this post includes 22 stocks which traded higher on heavier volume, and 3 stocks which traded lower on heavier volume Monday April 4, 2010. Many times I find an option strategy I plan on opening if I am convinced some money can be made.
The tables below show the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). The first table is a list of potential bullish stocks, the second table is a list of potential bearish stocks. For your convenience I have ranked both tables in order from greatest to least volume % change.
From the bullish list of stocks above, one stock which has had some serious momentum lately is KMG Chemicals, Inc. (KMGB). I caught nearly a double in this stock almost three years ago, when many chemical stocks were near their all time highs. As we know most of these stocks including KMGB came crashing back down to earth, however KMGB has been on a tear the last week, and it is starting to remind me of summer 2007. Although I usually write an option strategy on stocks I am bullish on, I will not be able to today, because KMGB is not an optionable stock, however I did not want to pass up the opportunity to let my readers know about this potential bullish breakout. As always I will first give a summary of KMGB from Google Finance and a 6 month daily chart below.
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To reiterate previous blog posts like this, the first thing I do is scan the list for familiar names, such as stocks I am quite familiar with or ones which have appeared on similar scans multiple times in the past week or two (most of these names are unfamiliar so it saves a lot of time). This indicates there may be some real momentum behind the stock, and that it could trade higher/lower in following sessions as well. Then (if and when any of the stocks I find are familiar to me), I make sure the stock has options available to trade, and then take a look at the chart(s) to see if I can structure a potential option trade. The list in this post includes 22 stocks which traded higher on heavier volume, and 3 stocks which traded lower on heavier volume Monday April 4, 2010. Many times I find an option strategy I plan on opening if I am convinced some money can be made.
The tables below show the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). The first table is a list of potential bullish stocks, the second table is a list of potential bearish stocks. For your convenience I have ranked both tables in order from greatest to least volume % change.
| Breakout Bull | |||
| Company | Ticker | Price Change | Volume Change |
| GeoMet, Inc. | (GMET) | 20.44% | 1460.55% |
| Symyx Technologies, Inc. | (SMMX) | 22.15% | 676.45% |
| Antares Pharma, Inc. | (AIS) | 4.58% | 663.89% |
| POZEN Inc. | (POZN) | 8.93% | 523.40% |
| GeoResources, Inc. | (GEOI) | 8.62% | 521.70% |
| Anooraq Resources Corporation | (ANO) | 6.45% | 484.42% |
| CARDIOME PHARMA CORP | (CRME) | 7.70% | 470.69% |
| Microvision, Inc. | (MVIS) | 18.54% | 407.07% |
| Axcelis Technologies, Inc. | (ACLS) | 7.07% | 385.59% |
| Overstock.com, Inc. | (OSTK) | 10.53% | 366.65% |
| Cerus Corporation | (CERS) | 14.84% | 309.17% |
| Reliance Steel & Aluminum | (RS) | 7.83% | 297.00% |
| Eastman Kodak Company | (EK) | 13.19% | 292.16% |
| KMG Chemicals, Inc. | (KMGB) | 8.05% | 283.07% |
| AerCap Holdings N.V. | (AER) | 7.05% | 194.38% |
| Joe's Jeans Inc. | (JOEZ) | 11.31% | 191.86% |
| Harley-Davidson, Inc. | (HOG) | 10.54% | 183.33% |
| First BanCorp. | (FBP) | 14.35% | 181.19% |
| Cree, Inc. | (CREE) | 9.96% | 169.51% |
| Ruth's Hospitality Group, Inc. | (RUTH) | 8.82% | 164.60% |
| Aixtron | (AIXG) | 4.47% | 134.76% |
| Louisiana-Pacific Corporation | (LPX) | 9.11% | 109.31% |
| Breakout Bear | |||
| Company | Ticker | Price Change | Volume Change |
| Lender Processing Services, Inc. | (LPS) | -4.12% | 302.06% |
| Global Payments Inc. | (GPN) | -2.08% | 104.51% |
| Lindsay Corporation | (LNN) | -3.49% | 101.79% |
From the bullish list of stocks above, one stock which has had some serious momentum lately is KMG Chemicals, Inc. (KMGB). I caught nearly a double in this stock almost three years ago, when many chemical stocks were near their all time highs. As we know most of these stocks including KMGB came crashing back down to earth, however KMGB has been on a tear the last week, and it is starting to remind me of summer 2007. Although I usually write an option strategy on stocks I am bullish on, I will not be able to today, because KMGB is not an optionable stock, however I did not want to pass up the opportunity to let my readers know about this potential bullish breakout. As always I will first give a summary of KMGB from Google Finance and a 6 month daily chart below.
KMG Chemicals, Inc. manufacture, formulate and globally distribute specialty chemicals. The Company has acquired and operates segments engaged in the electronic chemicals, industrial wood preserving and animal health businesses. The electronic chemicals segment provides wet process chemicals to the semiconductor industry, primarily to clean and etch silicon wafers in the production of semiconductors. The Company is a supplier of wet process chemicals to the semiconductor industry in the United States, and has presence in Europe. The Company’s wood preserving chemicals, pentachlorophenol, or penta, and creosote, are sold to industrial customers who use these preservatives primarily to extend the useful life of utility poles and railroad crossties. Its animal health pesticides are used on cattle, swine and poultry to protect these animals from flies and other pests.Click image to enlarge
KMG Chemicals traded in a tight range for most of March and looks as if it may have formed a base near the 15-16 area before breaking to the upside. Short term it looks as if KMGB is a bit over extended, however I certainly won't be shorting it here. To play the momentum I would purchase shares on any weakness and set a tight trailing stop loss of about 4% - 7%. On weakness, I would need to see KMGB hold the 17.50 level two consecutive days in order to purchase shares.
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.
These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.
Disclosure: No Positions
Sunday, April 4, 2010
Economic Recession Unfolds in 10 Minutes
I made some changes to my original video and re-uploaded it to Youtube. It is much better quality and I really wanted the video to have the original music tracks: Money Talks by AC/DC, When the Levee Breaks by Led Zeppelin, Gimme Shelter by The Rolling Stones, You Ain't Seen Nothing Yet by Bachman-Turner Overdrive, Low Budget by The Kinks, and Blurry by Puddle of Mudd. Youtube hasn't disabled the sound yet (knock on wood) so watch it while you can and let me know what you think. The various songs used in this video are reserved by original artists. The pictures and news articles used in this video are reserved by original sites. Please comment rate and subscribe to my videos! Also if you'd please share this video I'd greatly appreciate it!
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Happy Easter & Thanks Again
I thought I'd take a minute and thank all of my readers again for the great growth my blog has experienced over the past year. I Hope and plan to bring as many posts of interest in the months ahead. Thanks again, and happy Easter!
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Friday, April 2, 2010
It's a Crude Summer: 3 Energy ETF's, 3 Option Plays
The major indices traded higher across the board Thursday, helped manly by basic materials and energy. Natural gas and crude oil futures traded higher to close the session by 6.33% and 1.85% respectively. In this article I will outline why I believe it is time to get long some black gold and discuss how I will play the move using options.
United States Oil Fund (USO)
Before I get into any details, I would like to give an ETF summary from Google Finance and the 6 month (daily) chart below.
As we can see from the chart above USO has successfully broken and closed two consecutive days above the triangle pattern drawn in blue which is a bullish signal. Some resistance may come in around 41.50 - 42 per share, but I honestly believe we could easily see $100 per barrel by mid July so I think we will clear resistance setting new 52 week highs on this ETF.
USO Option Play: As stated I think we could see oil futures trade higher by 15 points or roughly 18% by mid July, therefore with the USO I am looking at opening July Vertical Call Spreads. Yes my prediction on crude oil translates into the ETF trading near 47-48 per share, however I must leave room for error. I would look at purchasing in-the-money July 40 Call options and immediately selling July 45 Call Options against them. As of current market data this spread could be opened for a theoretical price of $202 (plus any commissions) per call spread. This spread is currently in-the-money by 1.24 points so the premium paid for this spread is $78 or 78¢ per share; not too much considering there is over 100 days until the spread expires. If I were to get this spread I would look to take my first wave of profits if and when oil traded to $90 per barrel, then $95, and then $100. I would most likely take losses and stop out if oil trades near $78 and then $75 and try again if and when oil reestablishes an uptrend. If oil hits my target of $100 per barrel earlier than I expect such as by mid June, and we get a flashback of summer 2008 and every analyst on the street is slapping $150 - $200 price targets on oil, I would adjust my profit takes slightly, but remember three words we never hear an analyst say are: I was wrong...
ProSharesUltra DJ-AIG Crude Oil (UCO)
This is a leveraged ETF and should not be held for a long period of time, see my post Double and Triple Leveraged ETFs Revisited: The Real Decay to get a better understanding. Before I get into how I am looking at playing this ETF using options for a continued crude rally, I will give a summary of this ETF from ProShares and the chart below.
UCO Option Play: Even though these leveraged ETF's decay with increased levels of volatility, I don't have a problem taking a bet on this ETF, because as stated multiple times already, I believe the trend for crude oil is up until mid July. As we can see from the chart above this ETF too has broken above the triangle pattern (drawn in blue) and closed two consecutive days. This chart predicts UCO trading to 15 and change in a very short period, therefore I have decided to structure a shorter term bet which will get me into this ETF for very slight premium. I would look at opening Vertical Call Spreads for the May option expiration. I would purchase May 13 strike call options and sell May 15 strike call options against them. Based on current market data this spread can be opened for a theoretical price of $80 per spread (plus any commissions). This ETF is currently trading at 13.65 which puts a premium of just over 1% on this spread. The best case scenario would be for this ETF to close and expire above 15 per share on May 21, 2010 which would result in a gain of 150% on the investment, however I rarely wait until expiration to close positions, therefore I would look to lighten up if and when crude works its way up to $90, and then $95 per barrel, and would most likely stop out and take losses if and when crude settled below $80 per barrel.
Energy Select Sector SPDR (XLE)
This ETF is one of the most liquid energy related ETF's out there, and does not invest directly in commodities, but oil and gas related companies. For those unfamiliar with this fund, I have listed the top ten holdings and the chart below.
Click chart to enlarge
XLE Option Play: We can see from the chart above that a similar triangle pattern has emerged but has not yet been broken. Although the XLE has not broken and closed above it, I strongly believe it is only a matter of time before it follows the trend of the previous two ETF's discussed. I would like to see the XLE break and close two days above 59 per share, if and when it does, I will be looking at purchasing the June 30, 2010 60 strike call options (note these are the later of the two options which expire in June). Based on current market data the theoretical price is $180 per contract. This is actually the least volatile of the three ETF's discussed in this article, so although the speculation is the cheapest, the probability of having these calls payoff is also the lowest. If the triangle pattern is broken to the upside, the chart projects the XLE up to 63 per share on a short term basis. If I happen to get into these calls, I would look to cover some of my position by selling the 63 call options for the same expiration against the 60's (making the position into a vertical call spread) first if XLE traded to 60.50, then 61.50, and then to 63.
The ideas outlined above are bullish strategies and should not be considered if you think the ETF's will sell off in the near future. However if you feel the ETF's 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.
United States Oil Fund (USO)
Before I get into any details, I would like to give an ETF summary from Google Finance and the 6 month (daily) chart below.
United States Oil Fund, LP [USOF] is a limited partnership. USOF is a commodity pool that issues limited partnership interests [units] traded on the NYSE Arca, Inc. (the NYSE Arca). The Company’s general partner is United States Commodity Funds LLC (the General Partner) and is responsible for the management of USOF. The investment objective of USOF is for the changes in percentage terms of its units’ net asset value [NAV] to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract on light, sweet crude oil traded on the New York Mercantile Exchange (the NYMEX).Click chart to enlarge
As we can see from the chart above USO has successfully broken and closed two consecutive days above the triangle pattern drawn in blue which is a bullish signal. Some resistance may come in around 41.50 - 42 per share, but I honestly believe we could easily see $100 per barrel by mid July so I think we will clear resistance setting new 52 week highs on this ETF.USO Option Play: As stated I think we could see oil futures trade higher by 15 points or roughly 18% by mid July, therefore with the USO I am looking at opening July Vertical Call Spreads. Yes my prediction on crude oil translates into the ETF trading near 47-48 per share, however I must leave room for error. I would look at purchasing in-the-money July 40 Call options and immediately selling July 45 Call Options against them. As of current market data this spread could be opened for a theoretical price of $202 (plus any commissions) per call spread. This spread is currently in-the-money by 1.24 points so the premium paid for this spread is $78 or 78¢ per share; not too much considering there is over 100 days until the spread expires. If I were to get this spread I would look to take my first wave of profits if and when oil traded to $90 per barrel, then $95, and then $100. I would most likely take losses and stop out if oil trades near $78 and then $75 and try again if and when oil reestablishes an uptrend. If oil hits my target of $100 per barrel earlier than I expect such as by mid June, and we get a flashback of summer 2008 and every analyst on the street is slapping $150 - $200 price targets on oil, I would adjust my profit takes slightly, but remember three words we never hear an analyst say are: I was wrong...
ProSharesUltra DJ-AIG Crude Oil (UCO)
This is a leveraged ETF and should not be held for a long period of time, see my post Double and Triple Leveraged ETFs Revisited: The Real Decay to get a better understanding. Before I get into how I am looking at playing this ETF using options for a continued crude rally, I will give a summary of this ETF from ProShares and the chart below.
ProShares Ultra DJ-UBS Crude Oil seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones—UBS Crude Oil Sub-IndexClick chart to enlarge
UCO Option Play: Even though these leveraged ETF's decay with increased levels of volatility, I don't have a problem taking a bet on this ETF, because as stated multiple times already, I believe the trend for crude oil is up until mid July. As we can see from the chart above this ETF too has broken above the triangle pattern (drawn in blue) and closed two consecutive days. This chart predicts UCO trading to 15 and change in a very short period, therefore I have decided to structure a shorter term bet which will get me into this ETF for very slight premium. I would look at opening Vertical Call Spreads for the May option expiration. I would purchase May 13 strike call options and sell May 15 strike call options against them. Based on current market data this spread can be opened for a theoretical price of $80 per spread (plus any commissions). This ETF is currently trading at 13.65 which puts a premium of just over 1% on this spread. The best case scenario would be for this ETF to close and expire above 15 per share on May 21, 2010 which would result in a gain of 150% on the investment, however I rarely wait until expiration to close positions, therefore I would look to lighten up if and when crude works its way up to $90, and then $95 per barrel, and would most likely stop out and take losses if and when crude settled below $80 per barrel.Energy Select Sector SPDR (XLE)
This ETF is one of the most liquid energy related ETF's out there, and does not invest directly in commodities, but oil and gas related companies. For those unfamiliar with this fund, I have listed the top ten holdings and the chart below.
| Company | Ticker |
| ExxonMobil Corporation | (XOM) |
| Chevron Corporation | (CVX) |
| Schlumberger, Ltd. | (SLB) |
| Occidental Petroleum Corporation | (OXY) |
| ConocoPhillips | (COP) |
| Apache Corporation | (APA) |
| Anadarko Petroleum Corp. | (APC) |
| Devon Energy Corporation | (DVN) |
| Halliburton Company | (HAL) |
| XTO Energy, Inc. | (XTO) |
Click chart to enlarge
XLE Option Play: We can see from the chart above that a similar triangle pattern has emerged but has not yet been broken. Although the XLE has not broken and closed above it, I strongly believe it is only a matter of time before it follows the trend of the previous two ETF's discussed. I would like to see the XLE break and close two days above 59 per share, if and when it does, I will be looking at purchasing the June 30, 2010 60 strike call options (note these are the later of the two options which expire in June). Based on current market data the theoretical price is $180 per contract. This is actually the least volatile of the three ETF's discussed in this article, so although the speculation is the cheapest, the probability of having these calls payoff is also the lowest. If the triangle pattern is broken to the upside, the chart projects the XLE up to 63 per share on a short term basis. If I happen to get into these calls, I would look to cover some of my position by selling the 63 call options for the same expiration against the 60's (making the position into a vertical call spread) first if XLE traded to 60.50, then 61.50, and then to 63.The ideas outlined above are bullish strategies and should not be considered if you think the ETF's will sell off in the near future. However if you feel the ETF's 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 UCO April 10 Calls, XLE June 59 Calls, Short UCO April 12 Calls, UCO April 13 Calls, XLE April 56 Puts
Thursday, March 25, 2010
Over 500 Option E-Books Sold and Counting
I sold my 500th E-Book on July 5, 2009. Thank you to all my readers for purchasing my E-Books and reading my blog. I will continue to blog because of you! Even though demand for my E-Books seems high, I still want to make them affordable as possible and educate as many people about the option world as possible. I will continue to sell my option E-Books for rock bottom prices, and offer a 100% satisfaction guarantee! Lingo used in my blogs may seem frustrating at times, but once you understand the world of options it is as simple as 1-2-3. I have made some new updates to both E-Books to make them even simpler to understand and learn how to open and close the option positions.
Options are growing at an extremely fast rate as you can see from the chart below.
There is a reason for this growth. It is because they hedge your portfolio so well! As optimistic as I'd like to be, I do not know what the future holds. I do know that options are a great way to protect your portfolio against the volatile environment ahead.
Learning to trade options was one of the best moves financially I've ever made, like explained in My Story. I was taught the step by step process when I was 16 years old and was able to build on the basics. I strongly believe if I was never taught to trade options step by step like shown in my E-Books, I would have never learned because I may have given up trying to digest some of the other material out there. Get involved with options today with my simplified option E-Books and save an addition 15% when you buy both together. I promise you'll easily understand my E-Books.
I also recommend that once you have learned the basics of options you set up a live virtual account at OptionsXpress. This will help you develop your own strategies, and you'll be able to become more familiar with the pricing of options, risks, etc... Setting up a virtual account with "virtual funds" will ensure that you understand the basics of options, and is a great way to practice before trying options with real money.
Sphere: Related Content
Options are growing at an extremely fast rate as you can see from the chart below.
There is a reason for this growth. It is because they hedge your portfolio so well! As optimistic as I'd like to be, I do not know what the future holds. I do know that options are a great way to protect your portfolio against the volatile environment ahead.Learning to trade options was one of the best moves financially I've ever made, like explained in My Story. I was taught the step by step process when I was 16 years old and was able to build on the basics. I strongly believe if I was never taught to trade options step by step like shown in my E-Books, I would have never learned because I may have given up trying to digest some of the other material out there. Get involved with options today with my simplified option E-Books and save an addition 15% when you buy both together. I promise you'll easily understand my E-Books.
I also recommend that once you have learned the basics of options you set up a live virtual account at OptionsXpress. This will help you develop your own strategies, and you'll be able to become more familiar with the pricing of options, risks, etc... Setting up a virtual account with "virtual funds" will ensure that you understand the basics of options, and is a great way to practice before trying options with real money.
Buy Both of My option E-Books and SAVE over 15%! 100% Money Back Guarantee!
After successful checkout click "return to merchant" and you will be directed to a page where you can download both E-Books
After successful checkout click "return to merchant" and you will be directed to a page where you can download both E-Books
Sphere: Related Content
Volume Talks Wednesday: A Bullish Biotech Breakout Option Play
Today's breakout report is for Wednesday March 24, 2010. If this is your first time reading one of my breakout reports you'll want to read the section below, however if you are familiar with my daily breakout report you should skip ahead to the list of stocks.
To reiterate previous blog posts like this, the first thing I do is scan the list for familiar names, such as stocks I am quite familiar with or ones which have appeared on similar scans multiple times in the past week or two (most of these names are unfamiliar so it saves a lot of time). This indicates there may be some real momentum behind the stock, and that it could trade higher/lower in following sessions as well. Then (if and when any of the stocks I find are familiar to me), I make sure the stock has options available to trade, and then take a look at the chart(s) to see if I can structure a potential option trade. The list in this post includes 28 stocks which traded higher on heavier volume, and 19 stocks which traded lower on heavier volume Wednesday March 24, 2010. Many times I find an option strategy I plan on opening if I am convinced some money can be made.
The tables below show the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). The first table is a list of potential bullish stocks, the second table is a list of potential bearish stocks. For your convenience I have ranked both tables in order from greatest to least volume % change.
Out of the bullish list above, one stock which appeared Tuesday and multiple times in previous scans is Perrigo Company (PRGO). Before I get into any detail I will give a company summary from Google Finance below.
Click chart to enlarge
Perrigo Option Strategy: I would like to see slight profit taking bringing this stock back down to earth before I get long, but if it happens to pull back I need to see it hold two days above the 54.20 level which it opened at on Tuesday following the bullish news. My ideal entry point would be around this level, but before entering I would need to see a bullish confirmation on the chart. The option strategy I am looking at structuring is a very simple one, and only requires the use of two option contracts and one expiration. I would look at purchasing April 55 strike call options and immediately selling April 60 call options against them (1 for 1). This strategy is currently in-the-money and using current data it is trading a slight discount to the shares which is not unusual for in-the-money vertical spreads. This position could currently be opened for a net debit of $265 per spread. Depending on where the stock trades from here will determine the premium/discount for this vertical call spread, but as of this data the spread is trading at a discount of 15 cents per share. As stated I would like to get into this stock after a slight pull back and a bullish confirmation after that, therefore if I do end up opening this strategy near my ideal entry point, I would surely be paying a premium to open this spread.
Profit & Loss: The maximum loss from the example outlined above is limited to $265 per vertical call spread and will occur if Shares of Perrigo trade and close at or below 55 per share by April options expiration. The gain from this strategy is limited to $235 (or 88.7%) per spread and will result if shares of Perrigo close at or above 60 per share at April options expiration. The break even price per share is 57.65 at April options expiration. If I enter into this trade I will be monitoring my position based on the chart, as I rarely wait until expiration to close or allow my position to get exercised. As always, I will be updating the status of this trade in future breakout reports.
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/lower in following sessions as well. Then (if and when any of the stocks I find are familiar to me), I make sure the stock has options available to trade, and then take a look at the chart(s) to see if I can structure a potential option trade. The list in this post includes 28 stocks which traded higher on heavier volume, and 19 stocks which traded lower on heavier volume Wednesday March 24, 2010. Many times I find an option strategy I plan on opening if I am convinced some money can be made.
The tables below show the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). The first table is a list of potential bullish stocks, the second table is a list of potential bearish stocks. For your convenience I have ranked both tables in order from greatest to least volume % change.
| Breakout Bulls | |||
| Company | Ticker | Price Change | Volume Change |
| Funtalk China Holdings | (FTLK) | 18.24% | 2416.04% |
| Idera Pharmaceuticals | (IDRA) | 10.06% | 679.49% |
| Felcor Lodging Trust Inc | (FCH) | 19.73% | 569.78% |
| Neurogesx Inc | (NGSX) | 7.75% | 553.35% |
| Radian Group Inc. | (RDN) | 22.12% | 470.75% |
| M B I A Inc | (MBI) | 14.29% | 381.22% |
| Blackrock Muniyield Investment Fund | (MYF) | 1.16% | 333.77% |
| Putnam Managed Municipal Income Trust | (PMM) | 2.29% | 270.43% |
| China Biologic Products | (CBPO) | 24.01% | 266.42% |
| Celldex Therapeutics Inc | (CLDX) | 10.75% | 261.88% |
| Caraco Pharm Labs Inc | (CPD) | 2.09% | 249.47% |
| Rural/Metro Corporation | (RURL) | 4.75% | 249.36% |
| Ixia | (XXIA) | 1.48% | 248.58% |
| M G I C Investment Corp | (MTG) | 6.38% | 234.75% |
| Oriental Financial Group Inc. | (OFG) | 6.97% | 229.11% |
| Kraton Performance Polymers | (KRA) | 4.13% | 186.08% |
| Team Health Holdings, Inc. | (TMH) | 4.92% | 175.64% |
| Dreamworks Animation Skg | (DWA) | 3.75% | 174.71% |
| Health Grades Inc | (HGRD) | 4.38% | 146.20% |
| Darden Restaurants Inc | (DRI) | 2.28% | 145.27% |
| Oil States International, Inc. | (OIS) | 3.23% | 139.24% |
| Hersha Hospitality | (HT) | 7.55% | 119.05% |
| Perrigo Company | (PRGO) | 1.05% | 89.86% |
| Phillips-Van Heusen Corporation | (PVH) | 1.09% | 83.73% |
| Assured Guaranty Ltd | (AGO) | 5.93% | 64.68% |
| Williams Sonoma Inc | (WSM) | 3.70% | 52.70% |
| Baidu Inc | (XXIA) | 2.29% | 50.51% |
| Onebeacon Insurance Group | (OB) | 3.40% | 19.91% |
| Breakout Bears | |||
| Company | Ticker | Price Change | Volume Change |
| ESCO Technologies Inc. | (ESE) | -12.14% | 1381.01% |
| Genzyme Corporation | (GENZ) | -6.38% | 476.62% |
| Nice Systems Ltd. | (NICE) | -3.33% | 352.83% |
| Robbins & Myers, Inc. | (RBN) | -6.64% | 312.32% |
| NetEase.com, Inc. | (NTES) | -3.93% | 216.36% |
| Tennant Company | (TNC) | -4.21% | 129.47% |
| BRF Brasil Foods | (BRFS) | -2.25% | 118.35% |
| Encore Wire Corporation | (WIRE) | -2.87% | 109.94% |
| General Mills, Inc. | (GIS) | -1.89% | 103.21% |
| The Toro Company | (TTC) | -1.60% | 101.68% |
| National Grid plc (ADR) | (NGG) | -2.86% | 99.40% |
| Xilinx, Inc. | (XLNX) | -5.53% | 95.15% |
| Under Armour, Inc. | (UA) | -5.32% | 94.79% |
| Endo Pharmaceuticals | (ENDP) | -4.47% | 94.55% |
| AboveNet, Inc. | (ABVT) | -4.20% | 91.55% |
| Equinix, Inc. | (EQIX) | -1.88% | 81.19% |
| Capella Education Company | (CPLA) | -1.00% | 77.73% |
| Bristow Group Inc. | (BRS) | -2.39% | 77.01% |
| Carnival plc | (CUK) | -1.22% | 76.54% |
Out of the bullish list above, one stock which appeared Tuesday and multiple times in previous scans is Perrigo Company (PRGO). Before I get into any detail I will give a company summary from Google Finance below.
Perrigo Company is a global healthcare supplier that develops, manufactures and distributes over-the-counter and prescription pharmaceuticals, nutritional products, active pharmaceutical ingredients, and pharmaceutical and medical diagnostic products. The Company operates in three segments: Consumer Healthcare, Rx Pharmaceuticals and API. The Company has other category that consists of the Israel Pharmaceutical and Diagnostic Products. The Company operates through wholly owned subsidiaries. In the United States, its operations are conducted through L. Perrigo Company, Perrigo Company of South Carolina, Inc., Perrigo New York, Inc., Perrigo Holland, Inc. and Perrigo Florida, Inc. Outside the United States, its operations are conducted through Perrigo Israel Pharmaceuticals Ltd., Chemagis Ltd., Quimica y Farmacia S.A. de C.V., Laboratorios Diba, S.A., Wrafton Laboratories Limited, Brunel Pharma Limited and Galpharm Healthcare Ltd.Perrigo announced they were to acquire PBM Holdings, a private label baby food maker, for $808 million and was upgraded shortly after Tuesday, this caused the stock to spike higher, and the bullish price action continued Wednesday. I certainly believe the momentum for this stock is to the upside and if I was to ride the momentum in the stock I would consider getting long on a slight pull back and set a tight trailing stop loss. However I am considering opening a bullish option strategy which I will outline in detail below.
Click chart to enlarge
Perrigo Option Strategy: I would like to see slight profit taking bringing this stock back down to earth before I get long, but if it happens to pull back I need to see it hold two days above the 54.20 level which it opened at on Tuesday following the bullish news. My ideal entry point would be around this level, but before entering I would need to see a bullish confirmation on the chart. The option strategy I am looking at structuring is a very simple one, and only requires the use of two option contracts and one expiration. I would look at purchasing April 55 strike call options and immediately selling April 60 call options against them (1 for 1). This strategy is currently in-the-money and using current data it is trading a slight discount to the shares which is not unusual for in-the-money vertical spreads. This position could currently be opened for a net debit of $265 per spread. Depending on where the stock trades from here will determine the premium/discount for this vertical call spread, but as of this data the spread is trading at a discount of 15 cents per share. As stated I would like to get into this stock after a slight pull back and a bullish confirmation after that, therefore if I do end up opening this strategy near my ideal entry point, I would surely be paying a premium to open this spread.Profit & Loss: The maximum loss from the example outlined above is limited to $265 per vertical call spread and will occur if Shares of Perrigo trade and close at or below 55 per share by April options expiration. The gain from this strategy is limited to $235 (or 88.7%) per spread and will result if shares of Perrigo close at or above 60 per share at April options expiration. The break even price per share is 57.65 at April options expiration. If I enter into this trade I will be monitoring my position based on the chart, as I rarely wait until expiration to close or allow my position to get exercised. As always, I will be updating the status of this trade in future breakout reports.
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
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