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Thursday, October 30th, 2008
Like a tide that lifts all boats, the market’s recent rally has helped push shares of Potash (POT, $84.71, up $5.31) higher over the past three trading sessions. The stock hit a low of $60 last Friday and has quickly reversed course and held above $80 all day.
On October 21 and 22, I profiled the November 80 calls (PVZKP, $11.30, down $3.50) and the 2010 January 180 calls (WPTAW, $6.10, up $3.50) as high risk/ high reward trades. The November 80 calls have returned 140% as they were trading for $4.70 at the time. The January 180 calls are way out-of-the-money but have value simply because Potash can be an explosive stock. These calls were trading for $3.00 at the time of the blog and have easily doubled.
The trade was balanced so that if the November calls did not perform up to expectations then we still had insurance with the January 2010 calls which do not expire for another 16 months. Today, we got the best of both worlds as Potash looked strong all day.
The market has shown some strength this week and it looks like we may get out of October without another bomb dropping. The short-term oulook is up especially with the election right around the corner. This is normally a bullish time for the market and this rally could continue into next week. However, place stops accordingly, at least 75%-100% above your entry prices.
Rick Rouse
Rick@OptionsMentoring.com
Tags: LEAPs, Potash, Potash call options
Posted in Company Commentary | No Comments »
Thursday, October 30th, 2008
Exxon Mobil ($72.96, down $1.69) reported earnings that smashed its own record for the biggest profit from a U.S. company, earning an astounding $14.9 billion in the third quarter. That makes back-to-back quarters that Exxon has broken its own record.
The company reported revenues of $138 billion and net income came in at $2.86 a share, versus $9.4 billion, or $1.70 a share, a year ago. Wall Street was expecting Exxon to earn $2.39/ share on revenue of $131 billion.
So let’s get this straight. For the last six months, Exxon has made over $26 billion. That is amazing. Of course, Exxon will justify these hefty profits by saying that the costs of exploration and technology continue to rise and that they are putting most of this money back into the company, but man, that is a ton of cash. Makes you wonder what the real cost of oil should be, huh? Oil companies are coming off a quarter where oil prices had reached an all-time high of nearly $150/ barrel.
The stock is trading lower today despite the record profits because production was down when compared to last year’s quarter. The stock jumped nearly $9 on Tuesday from $66 to $74 so the “big” move had already been made. There’s that classic buy the rumor, sell the news trade.
The chart for Exxon is improving and today’s slight decline should help fill in some of the gaps it made from Tuesday’s strong push. If we can get a strong base here, the stock could make a run to $80 where it would face some resistance. Short-term option traders are targeting the November 80 calls (XOMKP, $1.85, down $0.35) while longer-term option traders are focusing on the January 85 calls (XOMAQ, $2.75, down $0.75).
I like a few other sectors more than oil right now (like the casino stocks) but there has been plenty of action in Exxon’s options today.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Exxon Mobil 3Q earnings, record profits
Posted in Company Commentary, Earnings | No Comments »
Wednesday, October 29th, 2008
It was only a matter of time before the casino stocks got a lift. The sector has taken a beating as consumers continue to cut back on everything as the ongoing housing downturn, diminishing credit, rising food costs and recession worries continue. Gambling was taking a back seat to all of the aforementioned issues but not today.
Last Thursday I mentioned a slew of casino stocks that looked good for a trade as many of the stocks had fallen 50%-75% off their 52-week highs. The short sellers are in the market today buying back stock as many of them are getting “squeezed”.
A short squeeze happens when a stock starts to rise rapidly and the short sellers want to get out. Supply and demand comes into play when short sellers start to cover and for many of these casino stocks that is what appears to be happening. There was some good news that came out of the sector today which was enough for short sellers to start buying back the stock. The price of a stock can be pushed even higher if there aren’t enough shares to go around.
Here is the list from last Thursday with a few LEAP options I had mentioned. I have also listed some November options that did well today.
Las Vegas Sands (LVS, $8.91, up $3.96)
November 10 calls (LJJKB, $1.70, up $1.25, or 277%)
January 2010 10 calls (LNUAB, $4.60, up $2.39, or 108%) — these calls do not expire until January 15, 2010.
MGM Mirage (MGM, $13.75, up $3.42)
November 10 calls (MGMKB, $4.70. up $2.75, or 141%)
January 2010 10 calls (YDMAX, $8.50, up $4.40)
Wynn Resorts (WYNN, $41.05, up $8.17)
November 40 calls (UWYKH, $8.00, up $5.65, or 240%)
January 2010 40 calls (YPWAH, $15.20, up $5.00, or 49%)
Boyd Gaming (BYD, $5.63, up $1.25)
November 5 calls (BYDKA, $1.05, up $0.80, or 320%)
January 5 calls (WWAAA, $2.50, up $0.90, or 56%)
Pinnacle Entertainment (PNK, $4.42, up $1.67)
The trading volume for the options on Pinnacle are thinly traded, that is why I didn’t list them. The November calls for these stocks could trade higher by the time they expire and are worth a small gamble. However, I believe the January 2010 call options for these stocks are compelling.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Boyd Gaming, Las Vegas Sands, MGM Mirage, Pinnacle Entertainment, short squeeze, Wynn Resorts
Posted in Hot Stocks, Sectors | No Comments »
Wednesday, October 29th, 2008
The market has been in and out of positive territory following yesterday’s huge rally, as the bulls and bears position themselves ahead of today’s decision on interest rates from the Federal Reserve. The Fed is expected to cut rates by a 1/2 or 3/4 of a point but Wall Street also taking bets on a smaller or wider cut. The current rate stands at 1.5%.
If we get a 1/2 point then we are right back where Greenspan had us. The big arguement is that this is why we are in a “recession” because money got so cheap to borrow. That is a can of worms that I’d rather not open because all we care about is figuring out which way the market is going to move.
Depending on the rate cut number, the market could rally, have a major sell-off or simply remain flat. I highly doubt the latter will happen because of the recent volatility. In fact, the market has made at least a 400 point swing in 20 out of 21 trading days this month. Many of the moves have been in a much higher range and we have probably averaged something like 700 points swings for the Dow.
Yesterday’s 900 point rally was impressive but we should know real soon if it was a bear market rally or if it is a rally that has legs. The Dow is up 63 points to 9,128 and we are about an hour away from the rate cut news. If we get anything less than a 1/2 point cut, it’s hard to say how the market will take it. Many expect a sell-off but it doesn’t really matter what the rate cuts are. Money is already cheap and the entire banking system is a mess. However, today’s news should move the market by triple digits one way or the other.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Fed Rate Cut Decision, stock market commentary
Posted in Market Analysis | No Comments »
Tuesday, October 28th, 2008
The market staged a furious rally on top of the one it had going in the final hour of trading that lifted the Dow to its second-largest point gain ever. The Dow rose 890, or 11%, to finish at 9,065.12. The biggest point gain for the Dow was 936 back on October 13. In the final hour alone the Dow doubled its 450 point gain it had going for the day.
The market surge came on no real newsworthy event although the bulls are expecting an interest rate cut on Wednesday by the Federal Reserve. The bounce could be attributed to testing a bottom but the Dow hasn’t tested its October 10 low of 7,773 (yet). For now its looks as though 8,000 is providing support and the close above 9,000 was bullish. Very bullish.
The rally was also surprising given the weak consumer confidence report that came out earlier in the day. The index fell to a record low of 38 for the month, well below 51 which was what Wall Street had expected.
Of course, with today’s rally we saw some huge moves in quite a few of the Dow stocks. Alcoa (AA, $10.78, up $1.74), Exxon Mobil (XOM, $74.86, up $8.77) and Chevron (CVX, $70.02, up $8.31) all had oustanding days rising 13%-20%. Verizon Communications (VZ, $31.65, up $4.04) added another 15% on top of Monday’s 10% gain. The oil stocks zoomed higher despite another drop in the price of crude which is now at $62/ barrel.
If we can get through this week without a test of the October lows then we could be setting up for a decent rally. The bulls seem to be charging ahead as if the market has made a bottom. One thing I can say about the bears. They might not be spitting in the wind but they may tug on Superman’s cape (meaning the bulls) one more time before we are officially out of October.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Alcoa, Chevron, Exxon Mobil, stock market commentary, Verizon Communications
Posted in Market Analysis | No Comments »
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Potash Smokes Higher
Thursday, October 30th, 2008
Like a tide that lifts all boats, the market’s recent rally has helped push shares of Potash (POT, $84.71, up $5.31) higher over the past three trading sessions. The stock hit a low of $60 last Friday and has quickly reversed course and held above $80 all day.
On October 21 and 22, I profiled the November 80 calls (PVZKP, $11.30, down $3.50) and the 2010 January 180 calls (WPTAW, $6.10, up $3.50) as high risk/ high reward trades. The November 80 calls have returned 140% as they were trading for $4.70 at the time. The January 180 calls are way out-of-the-money but have value simply because Potash can be an explosive stock. These calls were trading for $3.00 at the time of the blog and have easily doubled.
The trade was balanced so that if the November calls did not perform up to expectations then we still had insurance with the January 2010 calls which do not expire for another 16 months. Today, we got the best of both worlds as Potash looked strong all day.
The market has shown some strength this week and it looks like we may get out of October without another bomb dropping. The short-term oulook is up especially with the election right around the corner. This is normally a bullish time for the market and this rally could continue into next week. However, place stops accordingly, at least 75%-100% above your entry prices.
Rick Rouse
Rick@OptionsMentoring.com
Tags: LEAPs, Potash, Potash call options
Posted in Company Commentary | No Comments »