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Wednesday, January 28th, 2009
I had a feeling when I was doing the Weekly Wrap over the weekend that the financial stocks were due for a rally. If you haven’t noticed or if you are new to the blog, these stocks run hot and cold and we’ve played a dozen of them by buying both call and put options.
Sunday night, I mentioned the two that I liked most out of the group were Goldman Sachs (GS, $78.26, up $4.06), and JPMorgan (JPM, $25.06, up $0.56). Goldman was up 5% while JP was up 2% but both could be big movers again on Wednesday.
After the closing bell, word got out that the Obama administration’s plan to deal with the “bad bank” solution could come as early as next week. We all knew that behind closed doors the government has been discussing a plan to create a “government bank” that would buy up the toxic assets and bad investments. What we didn’t know is when something could be put in place to put these huge losses the banks have been reporting behind them. The Treasury, Federal Reserve and FDIC will all be involved and this is helping the futures trade higher ahead of Wednesday’s session.
Goldman was up another $3, or 4%, in after-hours trading.
I had mentioned that the options in many of the financials were juiced-up but there may be an opportunity to take a quick gamble on a couple of trades. The Goldman Sachs February 80 (GSBP, $5.00, up $1.45) calls were the most active in the February call chain as over 7,000 contracts traded. They opened on Tuesday at $3.95.
I like the February 85 calls (GSBQ, $2.85, up $0.90) which opened at $2.10 yesterday and finished with nearly a 50% gain.
As for JPMorgan, take a look at the February 26 calls (JSABI, $1.70, down $0.10) for a trade. For you lottery players, the Citigroup (C, $3.55, up $0.22) February 4 calls (CBW, $0.38, down $0.01) traded over 9,000 contracts and could be good for a double if the stock can get to $4.50 by Friday.
Now, I won’t be able to give you exact entry and exit points because things are likely to be wilder than a untamed cheetah when the opening bell rings on Wednesday. You will have to watch how these open, what the demand is, how the market is reacting, and go with your instincts. I will, however, try and give an early morning update on the action or where these stocks could be headed.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Citigroup, Goldman Sachs, JPMorgan
Posted in Option Trades | No Comments »
Tuesday, January 27th, 2009
Netflix (NFLX, $34.40, up $4.25) is having a banner day as the stock is up more than 14% after beating Wall Street’s expectations. The company reported a profit of $22.7 million, or $0.38 a share versus $15.7 million, or $0.23 a share from year ago results.
Revenue rose to $360 million, up nearly 20%, on strong subscriber growth. Netflix is rapidly approaching 10 million subscribers which is an increase of over 25% as they added another 718,000 for the quarter versus last year’s quarter. Some subscribers left the service but in the end, Neflix built its subscriber base.
Wall Street was expecting a profit of $0.34 a share on revenue of $354 million.
The company also announced a $175 million buy back of its shares.
The stock actually fell to a low of $29 on Monday ahead of earnings and those brave enough to dive into the February 30 calls (QNQBF, $4.90, up $2.20) are doubling their money today. Netflix has a strong brand-name and can be a volatile stock. However, the stock has been in a strong uptrend and has now doubled since its low of $18 in November. The 52-week high for Netflix is $40.90.
The question is…can Netflix break its 52-week high given the current market conditions? There are some options traders who think so. The March 35 calls (QNQCG, $2.60, up $1.30) have traded 1,000 contracts and there is a little action in the March 40 calls (QNQCH, $0.90, up $0.45).
If the stock can rally to $41 by March 20, then the March 35 calls would be worth $6 or more than a double from current levels. The March 40 calls would be worth $1. Of course, these targets could be reached a lot sooner if Netflix can extend its rally but that may be asking too much. The March 35 calls could be “in-the-money” by day’s end and it will be interesting to see what happens from here.
Another stock to keep an eye on is Imax (IMAX, $5.23, up $0.16) which traded above $5 yesterday. Here were my thoughts on the company back in early December:
“The one player I do like in the sector is Imax (IMAX, $2.73, down $0.08) and I have mentioned this stock before at much higher levels. I do not trust the stock enough to by any longer-term options but Imax could be a force in the movie industry down the road.
Imax has its fingers in a lot of pies and is developing some solid business partners and relationships with some top-tier names. The company recently inked a deal with Walt Disney (DIS, $21.94, up $0.48) and is strategically building the “Imax Experience” into a tidal wave.” –
To read the entire article, click here.
I’m not a stock trader but the trade made sense instead of buying options because the stock was so cheap and still is if Imax can grow their business the right way. If you got into the trade, I would set stops at $4.50 to protect your profits.
BTW, thanks to all of you who have sent me an email to be added to the Weekly Wrap. I can’t answer all of your emails but I do thank you for the time you take to write me. We are working on some exciting features for the newsletter and I will be bringing you details along the way. If you haven’t signed up yet, make sure you send me an email to get added to the list early.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Imax, Netflix
Posted in Company Commentary, Option Trades | No Comments »
Tuesday, January 27th, 2009
Palm (PALM, $6.50, down $0.87) is down more than 10% this morning after the U.S. Patent Office awarded Apple (AAPL, $90.22, up $0.58) a patent for its intellectual property involving the iPhone. There is a lot of hype with the Palm Pre, a new smartphone from Palm that has iPhone-like features that has got Apple’s feather’s ruffled.
Last week during its earnings call, Apple’s acting CEO stated that the company would not stand for having its intellectual property “ripped off”. Palm replied by adding that if they are faced with legal action they “are confident that we have the tools necessary to defend ourselves.”
Palm shares have been on a roll after unveiling the Pre at the Consumer Electronics Show three weeks ago, easily doubling from $3.30 to over $8. Other smartphones have flooded the market since the introduction of the iPhone but they have avoided using the multi-touch technology covered by this patent.
Palm’s executive chairman is Jon Rubinstein, who is a former Apple executive who had his hands all over the iPod. Maybe he thought he was still working for Apple when he came up with the Pre. Either way, let the litigation begin.
There are estimates that Palm could sell a million of the Pre’s in 2009 and 4 million in 2010. Those are big numbers and Palm is wanting more than a slice of the smartphone pie that Apple holds. This could get ugly. Bears are targeting the February 7.50 puts (UPYNU, $1.30, up $0.40) in early morning trading as over 3,000 contracts have traded thus far.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Apple, iPhone, Palm, Pre, smartphones
Posted in Apple, Company Commentary | No Comments »
Tuesday, January 27th, 2009
One of our favorite stocks, Chesapeake Energy (CHK, $15.80, up $0.90), made the rumor mill rounds yesterday as there is speculation that British energy group BP PLC (BP, $42.70, up $1.92) is preparing a takeover bid. Man, don’t you love it when the M&A activity heats up?
We’ve been down the Chesapeake road before playing the stock both ways with call and put options. Some of you made 50%-75% gains when I profiled the November 25 calls back in October as the stock ran from $22 to $26.
Then, in December after the company came out with news that it was selling stock to raise nearly $2 billion in cash, we bought the December 17.50 puts. That trade was good for over a 100% return as the stock fell from $17 to $14. Whenever a company sells stock to raise cash, it dilutes shareholder value. Earnings suffer because there are more shares…it’s the perfect recipe to play a stock lower in most cases.
I haven’t mentioned Chesapeake too much since but the option activity had me looking at the stock again yesterday. Naturally, the rumors were downplayed by both companies as a BP rep said that they never comment on market rumors. Ditto for Chesapeake. If there are any serious discussions between the two companies going on, it’s between them and a fencepost right now.
The option activity is expecting something sooner rather than later. The February 17.50 calls (CHKBW, $1.00, up $0.45) traded 20,000 contracts while the February 20 calls (CHKBD, $0.45, up $0.30) traded 21,000 contracts.
The March 20 calls (CHKCD, $1.00, up $0.45) traded a little over 5,000 contracts. However, looking into the numbers, it has been reported that most of the call activity was done by someone pretending to be a Gordon Gekko clone.
Somebody bought roughly 13,000 of the February 17.50 calls and 15,000 of the February 20 calls. Wow! Basically, dude bet $65,000 to make $3 million. If Chesapeake can get to $21 on a takeover bid then this person is going to make a mint.
I’m on the fence with this one and I like the stock at these levels but the news is already baked into the option premiums. The stock would have to get to $18.50 by February 20th just to breakeven on the February 17.50 calls.
This is exactly where the first level of resistance is for the stock with more headwinds at $20 and $22. If there is no merger, Chesapeake would have to rally on fundamentals and that doesn’t seem likely.
Rick Rouse
Rick@OptionsMentoring.com
Tags: BP, Chesapeake Energy, PLC
Posted in Company Commentary, Option Trades | No Comments »
Monday, January 26th, 2009
The Dow is off and running with a triple-digit gain to start the session as the bulls have come out buying this morning. The 120 point gain brings the index back to 8200 which is a good sign. Despite testing the 8000 level numerous times since October, the Dow appears to be forming a “triple bottom” which would set it up for a nice rally down the road.
We got some good economic reports this morning that has also put Wall Street in a good mood. Existing home sales rose 6.5% in December to an annual rate of 4.74 million units, as the median home sales price plunged to $175,000, down 15% from $207,000 a year ago. The decline was the largest year-over-year drop on record. The fact that home sales rose was a surprise to many. In other economic news, the Conference Board’s monthly forecast of economic activity increased 0.3% in December. Most economists were expecting a 0.3% decline.
We will have to see what the rest of the day holds but it appears the bulls are ready to take the market higher. One stock we are watching is International Business Machines (IBM, $91.65, up $2.16). The stock opened at $89.77 and quickly headed above $90. The February 95 calls (IBMBS, $1.60, up $0.45) opened at $1.00 and most of you are probably in this position at $1.00-$1.25. The calls have already traded as high as $1.95 when the stock hit $92.67 but remember resistance is strong at $93. Hopefully, we can break this level because if we do, the calls are headed for much bigger gains.
If you got in the trade this morning, protect your profits if it appears IBM is going to give back these gains.
Rick Rouse
Rick@OptionsMentoring.com
Tags: International Business Machines
Posted in Option Trades | No Comments »
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Netflix's Numbers
Tuesday, January 27th, 2009
Netflix (NFLX, $34.40, up $4.25) is having a banner day as the stock is up more than 14% after beating Wall Street’s expectations. The company reported a profit of $22.7 million, or $0.38 a share versus $15.7 million, or $0.23 a share from year ago results.
Revenue rose to $360 million, up nearly 20%, on strong subscriber growth. Netflix is rapidly approaching 10 million subscribers which is an increase of over 25% as they added another 718,000 for the quarter versus last year’s quarter. Some subscribers left the service but in the end, Neflix built its subscriber base.
Wall Street was expecting a profit of $0.34 a share on revenue of $354 million.
The company also announced a $175 million buy back of its shares.
The stock actually fell to a low of $29 on Monday ahead of earnings and those brave enough to dive into the February 30 calls (QNQBF, $4.90, up $2.20) are doubling their money today. Netflix has a strong brand-name and can be a volatile stock. However, the stock has been in a strong uptrend and has now doubled since its low of $18 in November. The 52-week high for Netflix is $40.90.
The question is…can Netflix break its 52-week high given the current market conditions? There are some options traders who think so. The March 35 calls (QNQCG, $2.60, up $1.30) have traded 1,000 contracts and there is a little action in the March 40 calls (QNQCH, $0.90, up $0.45).
If the stock can rally to $41 by March 20, then the March 35 calls would be worth $6 or more than a double from current levels. The March 40 calls would be worth $1. Of course, these targets could be reached a lot sooner if Netflix can extend its rally but that may be asking too much. The March 35 calls could be “in-the-money” by day’s end and it will be interesting to see what happens from here.
Another stock to keep an eye on is Imax (IMAX, $5.23, up $0.16) which traded above $5 yesterday. Here were my thoughts on the company back in early December:
“The one player I do like in the sector is Imax (IMAX, $2.73, down $0.08) and I have mentioned this stock before at much higher levels. I do not trust the stock enough to by any longer-term options but Imax could be a force in the movie industry down the road.
Imax has its fingers in a lot of pies and is developing some solid business partners and relationships with some top-tier names. The company recently inked a deal with Walt Disney (DIS, $21.94, up $0.48) and is strategically building the “Imax Experience” into a tidal wave.” –
To read the entire article, click here.
I’m not a stock trader but the trade made sense instead of buying options because the stock was so cheap and still is if Imax can grow their business the right way. If you got into the trade, I would set stops at $4.50 to protect your profits.
BTW, thanks to all of you who have sent me an email to be added to the Weekly Wrap. I can’t answer all of your emails but I do thank you for the time you take to write me. We are working on some exciting features for the newsletter and I will be bringing you details along the way. If you haven’t signed up yet, make sure you send me an email to get added to the list early.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Imax, Netflix
Posted in Company Commentary, Option Trades | No Comments »