OptionPundit

Tag: option trading

  • Just What I Said

    What a week that it was!! It’s very easy to say “just what I said” and pat your shoulder but the tough part is to say now what’s next? How do I benefit from what’s coming? I shall share what I mentioned to OPNewsletter members last week–

    So fireworks happened in the afternoon trading…
    …today is a critical day. Usually after such a sell-off we should be expecting a rebound for 2-7 days but it doesn’t look like the case based on market futures. If Dow can’t hold on to the recent lows, I think 9,400 (+/- 50 or so) will reach quicker then many can imagine, S&P roughly to 1,000 to 975, NDX towards 1650..no one can forecast markets accurately…hence no predictions, a simple game of probability…..pls don’t share this outside this group.

    Dow swiftly moved towards 9,600 before bouncing on last Friday. And what a market action it was on Friday afternoon.  Let me summarize in a simple way; hope zone (first 15mins), pain zone & sluggish zone (almost 3 hrs), then hope zone (2hrs and 45 mins) and finally, during last 12 mins, Dow dropped almost 70 points from the peak. Talk about Wall Street.

    Market internals point to a bearish situation but in the short term markets are oversold.

    • Over 60% of stocks are in bearish zone
    • More than 65% NYSE stocks are trading below 200 day average
    • Almost 85% NYSE stocks are trading below 50days moving average
    • We had 3 90% down days and last week was full of down volume, everyday.

    If there is a technical rebound, the levels that were earlier support will now turn into preliminary resistance areas. As I mentioned on my twitter streams sometimes back that even though VIX closed at 30.12, all the forward months are pricing VIX to be above 33 and that includes month’s as far as Feb’11 so traders are expecting volatility to stay here. Interesting times ahead.

    China’s stock market is already in bear zone. Most eyes are watching now on China’s property market (other one being IPO of China Agriculture Bank, the largest in the world). Others Asian countries aren’t far behind either as prices are running high towards the peak levels. If US is potentially entering into double dip and Euro zone being in austerity zone, export driven Asia economies are going to find it hard to keep growing that doesn’t spell so well for the short term future. According to latest Bloomberg report, China’s property market is beginning a “collapse” that will hit the nation’s banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund.

    The world is choked with debt. Trillons of dollar has already been pumped to save economies. Just for perspective, 1 Dollar bill is 0.010922cm thick. So if you stack, a dollar bill on top of each other, $1Trillion is about 109, 220 Km in height, almost 1/4th distance to moon. Currently US has over $13trillion nation debt (almost $43,000/person or roughly about $2,000 per person on this planet) almost good enough stack two trips between moon and earth.  That’s only US, here is a list of countries with external debt. The figures are simply mind blowing. These are unprecedented times.

    I am not sure where I read this first, but someone wise said this – “In Bear markets, winner is the one who loses the least”. Bear markets would like to engage as many traders as possible and when bear prowls it is ruthless. An important pattern has completed, there are lots of supports/resistances and we’ll handle it as it comes along. For the time being, I am watching the next level of supports as I mentioned above.

    Our speculative trade on NDX is yielding over +400%, though I have already suggested OPN members, who took this trade, to book profits last week. We have replaced this trade with another high risk/high reward NDX trade.

    Stay in touch, I will be sharing a powerful option trading strategy that can make money regardless the market direction but as long as it moves.

    Profitable Trading, OP

  • OPNewsletter May +18%, June +5.3% (Open)

    Another turbulent and volatile period! Last week started with a huge gap up rally after EU announced a $1trillion bailout package but by weekend it was a different story. Now there are questions on how solid it was. The confidence barometer, Euro, is now 4 years low and maybe even headed for $ parity as I wonder if EU will really step in to avoid Euro slide.  They should be pretty excited as EU economy may get much needed push with a weaker Euro. For OPNewsletter, we are 77% in cash. Remainder of the cash is invested across 3 income portfolio and we are nicely up +5.3% for June 2010.

    May 2010 was a record month for OPNewsletter. Since the beginning of Phase-2 of OPNewsletter in Jan 2008, this was the highest % gainer. We achieved +18% gains in May 2010. This is coming on the heels of 9.7% in April 2010. We also avoided market meltdown by going into cash before pullback really started hitting hard. These results don’t include returns on speculative trades like VIX (a few times), Google, ISRG, SLGN, and many more. Euro slide didn’t come as much of surprise too, as we had started anticipating this move when 50days EMA crossed the 200EMA for the first time in 18months.

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    I have been covering market commentary on both OPDiscussion forum as well as on Twitter. Congratulations to all those who benefited.

    If I could make a suggestion, [b]pls don’t over trade this coming week[/b]; keep it simple and watch the show…just watch out for the two levels I mentioned ([b]Dow 10,300 and 10,700[/b]).

    There were a few trade ideas I shared in the Weekly OPN portfolio tracking; Look out for Silver (CEF, SLV). I think silver’s time is coming soon (how soon, I don’t know). Silver maybe more volatile then gold so you gotta be careful.  As usual pls do your due diligence before investing any single $$ into any stocks I/OP mention anywhere. Regarding Gold, congratulations to all those who have been permabull on this, it hit a new record high (but not quite high yet if adjusted for inflation). If you have sometime, pls do read the this link . This is a post I wrote in 2007 which I hope will provide a historical perspective of how far have we come since then.

    50DMA StocksFrom Market perspective, Internals don’t look attractive and it seems that this pull back still has a course to run. Whether this is a full blown Market Top or just a healthy correction in the on-going primary uptrend, we’ll know only in the Hindsight.

    Look at the attached chart of NYSE stocks that are trading above 50days moving average. The lows are getting lower, in fact recent correction had the lowest % of stocks trading above 50days MA in the last 1 year; including all the three pullbacks. The distribution days are increasing and 90% down days are also increasing which doesn’t paint a healthy picture.

    Here is what one industry veteran (Mr Richard Russell of Famed Dow Theory has to say) –

    Russell suggestion — Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him.

    He is of the view that one should monitor the two Averages ($DJI and $DJT) hit “spear point” lows, Industrials at 10380.43, Transports at 4298.12 and he considers these to be of extremely importance. If both Averages hold above their May 7 lows, it will be a bullish indication; If both Averages turn down, and one Average violates its May 7 low but the other refuses to confirm, that could be a very bullish sign; If both Averages break below their May 7 lows, it will be a very bearish action, and could predict a crash (the two Averages do not have to break on the same day, but the closer in time they both violate the May 7 lows, the more authoritative and bearish the action).

    Besides a 10,300 level that one should be careful about, I think hard rain is not coming until the averages drops below following levels-  Industrial at 9,835, Transports at 3,740. Though I am not an expert on Dow Theory, I would stay clear if Dow drops below $10,300 and will reposition to re-enter around 9,835 but with risk management plans in place, in case Markets drops further. If However, Dow manages to remain above 10,700, I think we might have run this pullback course; at least for now.

    Thank you all the positive feedback on “Financial Freedom” article. I am glad you liked it and that it could add some value to your existing knowledge. If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    Trade Carefully, Trade Profitable, OP

  • How to Play Silgan Holdings (SLGN) Stock Split

    Silgan Holdings Inc. (SLGN), a leading supplier of consumer goods packaging products, announced today that its Board of Directors declared a two-for-one stock split of the issued Common Stock of the Company, to be effected in the form of a stock dividend. Stockholders of record at the close of business on April 20, 2010 will be issued one additional share of Common Stock of the Company for each share of Common Stock owned on that date. Such additional shares will be distributed on May 3, 2010.

    For those who don’t know about Silgan Holdings, it is a leading manufacturer of consumer goods packaging products with annual net sales of approximately $3.1 billion in 2009. Silgan operates 66 manufacturing facilities in North and South America, Europe and Asia. In North America, Silgan is the largest supplier of metal containers for food products and a leading supplier of plastic containers for personal care products. In addition, Silgan is a leading worldwide supplier of metal, composite and plastic vacuum closures for food and beverage products.

    So how to play this stock split announcement via Options–

    SLGN Bull Put Vertical The Basic concept is that stocks usually trends up leading into the split day and it is so because many investors/traders think that stock split is a sign of confidence; and since majority follows it, it also serves as a self-fulfilling prophecy. Of course not all the stocks that announce split goes up, so one has to be selective in choosing to play this “potential uptrend”  that might last for a few weeks. And I think SLGN maybe one of those.

    A Bull call debit spread or a bull put vertical credit spread good be one of the ways to play a potential uptrend. I am personally of the opinion to sell to open a May 60/55 Bull Put Vertical spread. As of yesterday close, this spread will bring $1.25 credit and thus $3.75 on Margin. By May’10 expiration, if SLGN stays above $60, it may generate 33.3%  returns. The Breakeven for this trade will be $58.75 (=$60-$1.25) below which the trade will start to lose money and will lose 100% by May expiration if either a) it is not adjusted or b) not taken off for a loss. I usually prefer to book profit/loss at 15-18%.

    Disclaimer- As of this writing, I don’t have any positions in SLGN, but I may open anytime. I may open either any of the strategies discussed above or a different one. I may also change my opinion anytime. Pls do proper due diligence before investing even a single $.

    Profitable Trading, OP

  • How to Play Google Earnings, Again?

    Google (GOOG) is announcing earnings today after market close. A $500+ stock and famous for it’s move post earnings, it is almost in every “speculators” list to play for the big event.

    I covered GOOG earnings extensively. If you are looking for a play based on detailed analysis based, check out the past trades here.  There were 4 different types of plays and all were the winners.

    So do you want to play again? what is your outlook on how much Google is going to move. If you expect Google to move more than $15-$20, you should not even read further.

    I think it may be range bound when it opens tomorrow. It may move $10-$15 but not very much. Of course I may be wrong and I had been wrong in the past. So what to do? I would like to reduce my risk and hence I am willing to spend a very small sum for my views and I am willing to lose all as there will not be not much time left for Oct expiration.

    Here is how I plan to trade this-

    Buy Oct 520 Put Butterfly and 540 Call Butterfly. This trade can be done for $230 (as of this writing). In order for this trade to make money, Google should be between $512.3 and $527.6; and between $532.26 and $547.7

    Goog Earnings Oct 2009
    Goog Earnings Oct 2009

    So if someone has a $10K portfolio, this will be 2.3% of capital. If you have a large cap portfolio, don’t invest more than a small fraction on it as you may lose 100% of the capital invested on this. Pls do your due diligence before you invest any single $$.  I am personally into this and many other variations for Google earnings.

    The GLD trade was closed for nice profits.

    All the best, Profitable Trading, OP

  • OPNewsletter (Oct’09) Up +9.5%

    88.7% capital invested, no major adjustment needed, all but one portfolios made money and closed, 1 portfolio still open (down -2.9%), OPNewsletter delivered +9.58% x -commissions and +7.8% including commissions. As good as it gets. We are starting to look out and analyze opportunities for November 2009 income portfolio. If you are not an OPNewsletter member and would like to join, pls sign-up for the waitlist here.

    These results don’t include returns from speculative trades i.e. bonus alerts.  I shared trade ideas on GOOG and GLD. While GOOG trade required adjustment as GOOG quickly bounced from 480s  (I didn’t close the trade), GLD trade is working excellent.

    Gold is decidedly above $1,000 while USD is continuing to weaken.  For the stock markets, while a debate is going on between the Bulls and Bears, there don’t seem to be a clear technical sign for any major top. Personally, I don’t belong to the Bulls camp but I am not short this market either.

    Looking forward to an action packed earning’s week. I am likely to play a few counters for earning related moves. Stay in touch.

    Profitable Trading, OP

  • How to Play Next “Black Swan” Bear Leg

    Which side are you at? Bull or Bear? Based on the current market sentiments, general bullish bias, feeling of missing last up leg and given that every indicator is screaming buy buy buy, chances are that you are on the Bull’s side. If so, there is not much point reading this post any further.

    There are still a few perma-bears (and they have solid record to attach) are predicting about March lows being penetrated or touched again. This kept me thinking if I should listen to what they are saying given their past history.  So I worked out a low risk strategy that is explained later in the post. What if they (and hence my bet) is wrong, I’ll lose 100% of 1% trading capital that I have invested in this idea. But what if, even though it is only 4% probability, these guys are correct? First trade has potential to return over +2,800% with 4% delta based probability (by Dec’09 expiration) and another trade has potential to generate +700% with 24% probability (by Nov’09 expiration).

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