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Friday, February 27th, 2009
Amgen (AMGN, $50.08, down $1.15) is no stranger to the blog and we recently closed a trade on some call options back on 2/11. I had profiled the March 60 calls (YAACL, $0.07, down $0.09) back on 2/2 and at the time they were going for $1.20. Amgen went on a great run right after that and was up for eight straight trading sessions. We rode these same calls from $1.20 to $2.30 and we stopped out at $1.80. During those eight days, the stock moved from $55 to above $58. The stock may have only moved 5% or so but that was good enough for a 50%-75% profit. Now look at these same call options. Once again, the importance of stops and taking profits.
The shares fell hard on Thursday after 2PM, tanking from $55 to $50 in the last couple of hours. Some of this can be blamed on Obama’s healthcare plan as Wall Street fears that it will lead to reduce revenues. Maybe, but the sell-off is way overdone.
Obviously, I don’t believe Amgen will have the mustard to make it back to $60 by March 20th which is when the March options expire. The March 55 calls (YAACK, $0.35, down $0.50) are a possibility and might do for a rebound trade for next week. The April 55 calls (YAADK, $1.20, $0.40) are looking like candy and the market is the baby. In other words, I really like them.
As far as Amgen continuing its drop…it could. There is real solid support at $47-$48 and I would think Amgen could hold these levels. If not, then we could be in trouble. However, given the huge discount we got this week on one of the best names in biotech, I think the call options will do well.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Amgen, March call options
Posted in Option Trades, Uncategorized | No Comments »
Friday, February 27th, 2009
The market has held up well despite what the futures were telling us this morning. Before the opening bell, S&P futures were lower by 17.50 while the Nasdaq futures were down 15.50 which meant a nasty open. This after negative headlines concerning the government and its $25 billion stake in Citigroup (C, $1.65, down $0.81). I won’t get into the details, instead I’ll sum it up in one word. Dilution. Hence, the 30% drop in the stock.
After opening with a triple-digit loss right out of the gate, the Dow is making a furious comeback off its low of 7,033. The Dow is now down only 15 points to 7,104 as we head to lunch.
Just some quick notes, International Business Machines (IBM, $92.16, up $3.19) is on fire this morning and I said last night this is a strong stock in a weak market. The March 95 calls (IBMCS, $2.10, up $1.00) have doubled with today’s big move. These calls were profiled at 70 cents yesterday morning and some of you may have gotten in at higher prices. That’s okay because even if you got in late, they are still rocking. It’s a tough call to leave these open and you will have to see how the market is acting before the closing bell. If it looks like the Dow is headed below 7,000, you may want to get out.
I nibbled on some Freeport-McMoran (FCX, $30.96, up $0.87) options earlier this morning. The March 35 calls (FCXCG, $1.05, up $0.23) were going for 99 cents a contract at the time. The have traded as low as 50 cents. I like Freeport but there is strong resistance at $33. The move above $30 was a bonus and my Watch List alerted me of this. If the stock can hold $30 today AND the market is trading on a strong note as we head towards the closing bell, then keep the trades open.
Make sure you sign up for the Weekly Wrap for all of the updates. It comes out Sunday nights, right to your inbox. Just enter your email address above my mugshot.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Freeport-McMoRan, IBM
Posted in Option Trades | No Comments »
Thursday, February 26th, 2009
Not much has been happening with AutoZone (AZO, $141.08, down $2.80) since I profiled the stock on Tuesday. The March 160 calls (AZOCL, $1.50, down $1.50) were at $2.30 and the March 130 puts (AZOOF, $3.80, down $0.80) were at $3.90.
My initial hopes were that the stock would have fallen to below $140 this week which would have made the puts options worth $6-$6.50. That would have allowed us to sell the puts for enough of a profit that it would have left us with a free call option on the stock going into earnings.
AutoZone hit a low of $140.72 today, so we will see…
Bank Of America (BAC, $5.32, up $0.16) has had a heck of a week as banks have been rallying. The March 6 calls (BYOCF, $0.50, up $0.14) and the March 7 calls (BYOCG, $0.30, up $0.05) were profiled on 2/12 at 90 and 60 cents.
The March 6 calls traded to a high of 80 cents and the March 7 call options traded to a high of 45 cents. This represented a loss of 10% and 33%.
It looks like I was a week early on the recommendations and maybe they should have been sold today for a small loss. Remember what I have been telling you. If you can limit your losses to 25%-50% on options trades while making 100% then you will do fine. I don’t mind taking a small loss on the trades and will probably close them on Friday. There are better opportunities out there for us to make some money.
I mentioned the International Business Machines (IBM, $88.97, up $3.07) March 95 calls (IBMCS, $1.10, up $0.60) this morning at 70 cents. As I was doing the blog, IBM came out with “breaking news” and the stock started to rally after the company said it was on track with its 2009 numbers.
The call options immediately started to trade higher and ran to a high of $1.40. Obviously, that was good for a 100% return. I realize many of you can’t follow the market minute by minute and I’m looking at an alert service to inform you of the blog postings. If you are interested, send me an email and any thoughts you might have.
The call options are still up 50% and IBM looks pretty strong in a weak market.
We closed the Safeway (SWY, $18.37, down $2.75) trade this morning. The March 20 puts (SWYOD, $1.95, up $1.25) were profiled at 70 cents on Wednesday and you could have bought them before the market closed at 65 cents. I said to sell them this morning at $1.80 and yes, they finished higher but after hitting a high of $1.90, the puts traded back to $1.40. That was the difference between 150% and a 100% trade.
The put options still closed higher than where we sold them at but our trade parameters were already meet. New options traders will hold onto these positions instead of taking what the market gives them. That is the main reason between having winning and losing option trades. Safeway could continue lower but when our goals are meet, ring the register and move on to the next trade.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone, Bank of America, IBM, Safeway
Posted in Option Trades, Stock Earnings, Strategies, Uncategorized | No Comments »
Thursday, February 26th, 2009
The trade in Safeway (SWY, $18.54, down $2.58) is paying huge dividends this morning. I did a write-up yesterday around noon and talked about the company’s earnings with the possibility of buying put options ahead of this event. Most pros will tell you these are the riskiest of trades but I had a good feeling about this one.
My research was pointing towards a lower stock price after the company announced its profits which were due to be released before the opening bell. There were some issues that led me to believe that buying puts would be the way to go. First, the pricing wars the company is having is starting to catch-up and I felt there could be an earnings miss. Then, I looked at the stock’s past trading history around earnings and studied how the shares have traded over the past 90 days.
A lot of investors were buying the stock yesterday in anticipation of a good earnings report which allowed us to get into the trade at cheaper prices. Well, all of that research has paid off.
Wall Street was expecting the company to report a profit of $0.81/ share and they came in at $0.79. The company announced before the bell and the stock is getting absolutely crushed an hour into the trading session. The 10+% loss has meant 150%+ profits on our put options.
The March 20 puts (SWYOD, $1.80, up $1.10) are up 157% from yesterday’s close, folks. I had mentioned several times that this was a lottery play and I said to reduce your exposure. Even if you only bought 5 contracts, this is a huge return. The total cost of the trade would have been $350 had you bought these options before yesterday’s close. That investment would now be worth $900…
I don’t know about you but $550 is a pretty good day. I had also mentioned the March 17.50 puts (SWYOW, $0.50, up $0.35) which are up 233% from yesterday’s closing price but felt more comfortable with the 20’s.
Close the trade now or set a stop of $1.60.
Before I go, International Business Machines (IBM, $87.90, up $2.00) just came out with good news. The March 95 calls (IBMCS, $0.70, up $0.20) could get some serious action.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Safeway misses earnings
Posted in Option Trades | No Comments »
Wednesday, February 25th, 2009
I’ve been thinking of doing a trade on Safeway (SWY, $21.13, up $0.62) with earnings due out on Thursday before the bell. For those of you new to the blog, buying options specifically on an earnings announcement is a dangerous game but one I like to dabble in. There are times where option investors trade earnings announcements and they are usually considered “lottery” plays.
First Solar (FSLR, $112.18, down $25.50) is a prime example of just how volatile a stock can be. The stock was up $12 yesterday, down $25 today after saying 4Q earnings doubled yet their outlook was weak.
Safeway is not going to make that dramatic of a move but I do think we could get a 10% pop either way. I’m leaning towards the bearish camp because there have been a slew of downgrades on the stock and I think Safeway is going to report weaker-than-expected earnings.
Interesting enough was the volume in the March 17.50 puts (SWYOW, $0.20, down $0.05). Safeway’s options don’t usually attract a lot of attention and there appears to be a “block” trade of 400 contracts that was made earlier this morning. These puts were at 35 cents on Monday and I’ve been watching them all week. The one thing that worries me is the rally Whole Foods Market (WFMI, $12.40, down $0.06) got after it reported earnings. The stock jumped from $9 to $13 after the company pleased Wall Street with its numbers.
Having said all of that, the research I’ve done is leaning towards a lower stock price despite today’s rally in the shares. However, I don’t want to go that far out with the March 17.50 puts. Yeah, they could jump to 40 cents if Safeway tanks on Thursday but the March 20 puts (SWYOD, $0.70, down $0.20) look like a safer play.
If the stock rallies to $23-$24, then the March 20 puts might fall to 30 cents or so. However, the March 17.50 puts would probably fall to 5 or 10 cents. The options don’t expire for another month so there would be time for the stock to fall back. That would be a lot to ask for though – to rally to $24 then fall to $17. That would mean a 25% drop in a month for the stock and that is unlikely.
The bottom line is this is a lottery play. It’s like betting on black or red at the tables. I like the trade though. However, we can limit some of our exposure. By that I mean…instead of buying 10 contracts, only buy 5. If you normally do 20 or 30 block option trades, then do 10 or 15. You get the point.
You can wait and buy the puts before the closing bell as they might get cheaper with a rally. Either way, the position would be closed on Thursday, regardless of what the stock may do in the following weeks.
Rick Rouse
Rick@OptionsMentoring.com
Tags: lottery option plays, Safeway
Posted in Option Trades | No Comments »
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