Which Way Wednesday – Fed Edition
by Phil - September 21st, 2011 8:28 am
Strap in folks, it’s going to be another wild ride!
As you can see from Doug Short’s S&P chart,we are about to slam right into that collapsing 50-day moving average, now at 1,223.40 – right about where the S&P topped out on yesterday’s morning spike. Unfortunately, the Nasdaq topped out and headed down before the other indexes got a chance to complete their up cycle and the Dollar rose back over the 77.50 line and tanked the market – exactly as we predicted it would at the bottom of yesterday morning’s post.
Of course, I can’t MAKE these things happen – I can only tell you what’s going to happen and give you trade ideas to help you profit from it. I mentioned that we had picked up 10 DIA 9/30 $115.75 calls in our virtual $25,000 Portfolio at $1.05 on Monday and they topped out at $1.75 (up 66%) but we took a non-greedy exit at $1.45 in the morning spike (up 33%) and we switched to 20 QQQ 9/30 $57 calls at .45 in the afternoon sell-off. So, we made $350 off a $1,050 investment and then we spend $900 but now we have 20 contracts instead of 10 but we also have $450 in cash so now risking just $600 of our original investment on the much more volatile Fed day.
Another trade idea we like ahead of the Fed that’s still playable is 20 FAS weekly $13/14 bull call spreads at .38 ($760), selling 10 JPM Oct $28 put for .55 ($550) for net $210 invested on the 20 $1 spreads. The worst-case on this spread is owning JPM for net $28.10, which is 13% off the current price and the best case is a $1,790 profit (852%) in a week. That sounds like a lot but options let you do funny things like at 11:30 in Member Chat, we saw PCLN making new highs against news that we thought was not actually that good for them on closer examination. Our trade idea to take advantage of that was:
If you want to play PCLN bearish – it’s very risky but the weekly $565/555 bear put spread is $6 and you can sell the $565 calls for $4.70 for net $1.30 on the $10 spread. Oct $620s are $4.10 so your bet is
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DiggOracle Bulls Envision 10% Rally in Shares by June Expiration
by Option Review - March 23rd, 2010 4:06 pm
Today’s tickers: ORCL, KFT, CLF, JPM, JCP, MCD, ROK, HK, TIE & LXK
ORCL – Oracle Corp. – Options players are initiating bullish stances on software development firm, Oracle Corp., today ahead of the company’s third-quarter earnings report scheduled for Thursday after the closing bell. Oracle’s shares rallied 0.95% during the current session to trade at a new 52-week high of $25.80. Medium-term optimists scooped up 10,600 call options at the June $28 strike for an average premium of $0.37 per contract. Perhaps plain-vanilla call buyers foresee continued bullish movement in the price of Oracle’s shares through expiration in June. Investors long the calls accrue profits if shares of the underlying stock surge 10% from the current price to breach the breakeven point at $28.37 by expiration day.
KFT – Kraft Foods, Inc. – Voracious investor appetite for call options on Kraft Foods this afternoon pushed the KFT ticker symbol onto our ‘most active by options volume market scanner’ as shares of the U.S. food maker jumped 2.25% to a new 52-week high of $30.40. It looks like one particularly bullish individual satisfied his hunger for Kraft-calls by purchasing a large chunk of 16,000 contracts at the September $32 strike for a premium of $0.69 apiece. The investor holding the call options is prepared to reel in profits on the position if Kraft’s shares rally another 7.50% from the current value to surpass the breakeven price of $32.69 by expiration day in September.
CLF – Cliffs Natural Resources, Inc. – Shares of iron ore pellet producer, Cliffs Natural Resources, jumped more than 6.00% during the trading day to arrive at a fresh 52-week high of $69.34. Investors celebrated Cliffs’ new high by enacting a plethora of bullish options strategies on the stock. One such individual established a ratio risk reversal in order to cover the cost of taking a long position in Cliffs-calls. The optimistic trader sold 1,500 deep in-the-money put options at the July $75 strike for a premium of $11.50 per contract, and purchased 3,000 calls at the same strike for an average premium of $4.51 each. The reversal player pockets a net credit of $2.48 per contract on the transaction, which he keeps if shares of the underlying stock rally up to or above $75.00 by expiration. Additional profits also accumulate for the trader should shares breach the effective breakeven price of $75.00. Other bullish investors initiated…
Options Player Reveals Long-Term Bullish Sentiment on AIG
by Option Review - March 12th, 2010 4:19 pm
Today’s tickers: AIG, MU, F, POT, CLF, PAYX, ERIC, SVU, LFC & CA
AIG – American International Group, Inc. – The insurer’s shares experienced a fantastic 56.7% run up from its low point in the current month of $24.54 on March 3, 2010, up to yesterday’s intraday high of $38.45. During the current session, AIG surrendered a small portion of its recent share price gains, slipping slightly lower by 1.40% to stand at $34.62 in afternoon trading. Extreme-bullish positioning in long-dated options caught our attention today as one investor established a call spread in the January 2011 contract. The optimistic trader purchased 5,500 calls at the January 2011 $50 strike for a premium of $3.65 apiece, and sold the same number of calls at the higher January 2011 $75 strike for $1.30 each. The net cost of the transaction, and maximum loss potential faced by the investor, amounts to $2.35 per contract. American International Group’s shares must surge 51.2% from the current price of $34.62 in order for the trader to break even on the spread at $52.35 per share. Perhaps the individual responsible for the trade expects AIG’s shares to rebound up to the current 52-week high on the stock of $55.90 (attained back on August 28, 2009), or above within the next ten months to expiration. Maximum available profits of $22.65 per contract – total gains of $12.4575 million – accumulate for the bullish player if AIG’s shares jump 116.6% from today’s price to $75.00 by January expiration day. Shares last traded above $75.00 back in October of 2008.
MU – Micron Technology, Inc. – A large-volume long-term bullish transaction on the manufacturer of semiconductor devices indicates one big options player anticipates continued upward movement in the price of Micron’s shares by expiration in January 2011. Shares rallied 2.55% to $10.05 this afternoon, but earlier increased more than 4% to reach an intraday high of $10.25. The optimistic investor purchased a debit call spread in by picking up 20,000 in-the-money call options at the January 2011 $10 strike for a premium of $2.07 apiece, marked against the sale of 20,000 calls at the higher January 2011 $15 strike for $0.58 each. The net cost of the spread amounts to $1.49 per contract, positioning the investor to amass profits if Micron’s shares exceed the breakeven price of $11.49 by expiration next year. Maximum potential profits of $3.51 per contract…
Option trader predicts natural gas set to rally into next heating season
by Option Review - May 15th, 2009 6:08 am
Today’s tickers: UNG, HIG, XLF, XRT, CLF, WFMI & VRTX
UNG– Shares of the natural gas fund have rallied by more than 1% to stand at $16.66. We observed some bullish call buying on the ETF by one investor looking for natural gas prices to heat up as we head into the beginning of ‘heating season’ in October. It appears that this individual looked to the October 20 strike price and purchased 26,000 calls for an average premium of 1.45 apiece. The 31,000 call options traded at the October 20 strike today is more than five times the existing open interest at the strike of just 6,834 lots. With a breakeven point of $21.45 on the trade, the investor is hoping to see shares of UNG rally by a minimum of 29% from the current price so he may begin to garner profits to the upside. – United States Natural Gas ETF
HIG– Investors in the insurance and financial services firm have witnessed HIG’s shares surge more than 21% today to the current price of $15.23. While a mass of more than 120,000 option contracts exchanged hands on the stock throughout the trading day, our attention was drawn to a couple of bullish plays. Traders who expect the stock to retain gains into next month looked to the June 16 strike price and purchased some 4,000 calls for an average premium of 1.20 each. Investors will breakeven at a price of $17.20 by expiration. Uber-bullishness was observed at the September 25 strike where about 4,400 calls appear to have been purchased for a premium of 91 cents per contract. These call-buyers have thrown a Hail Mary pass today, but they will have to wait to see whether it will be received in the end zone or whether it will fall short by expiration. To profit from the long-call position, shares will need to rally with a vengeance by about 70% through the breakeven point at $25.91. Option implied volatility has climbed throughout the week from 112% on Monday to the current reading of 144%. – Hartford Financial Services Group, Inc.
XLF– The financials ETF, a daily presence on our ‘most active by options volume’ market scanner, has enjoyed a more than 3.5% rally to $11.80 amid broad gains enjoyed by financial firms today. While more than 250,000 option contracts were traded on the fund, we focused in on one…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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