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Tuesday, February 24th, 2009
I mentioned in the Weekly Wrap on Sunday night that I was watching First Solar (FSLR, $137.68, up $12.84) as a possible trade. I watched the March 150 calls (HJQCJ, $7.40, up $2.50) open at $5.20 and I wanted to jump on them if they got below $5 but their earnings announcement was to tough to call. The water was too dangerous for us to even stick our toes in it.
Not that I didn’t think they would report good earnings, they did as profits doubled for the quarter, but because First Solar is one stock that has a history of mixed results after reporting earnings. As you can see, the stock had a great day, rising over 10%, and the options ended the day for a 50% gain. That was in anticipation of good earnings.
However, First Solar is getting crushed in after-hours trading. The stock is down $18 to $119. If you had held those calls after the close, you could be in big trouble if things stay the same when the opening bell rings on Wednesday. This is preciously why I stayed away from the trade. Yeah, a straddle or strangle option trade may have worked but I just didn’t “feel” the trade. There will come a time to trade First Solar but lets wait until the dust settles with this one.
Also, with the Dow rising all day and really taking off when Bernanke spoke, it was a no-brainer to close the Dow Jones Industrial Average Index (DJX, $73.51, up $2.36) trade. I have been warning of a “snap-back” rally and although it wasn’t a huge one, the Dow still managed a 3% gain. Those kind of gains in a stock or ETF can have an adverse effect if you are in an option trade and the stock is going the wrong way on you.
Having said that, we had stops in place for the trade at $3.85 on the March 75 puts (DJXOW, $4.10, down $1.15). The stop could have been raised or the trade should have been closed altogether as the rise in the Dow was becoming apparent. The puts opened at $5.10 and you could have protected your profits at $4.50 or higher. The trade was profiled at $3.10.
The March 74 puts (DJXOV, $3.00, down $1.80) had a stop of $3.25 and were profiled last Wednesday as well at $2.75. These put options opened at $4.25 and hit a high of $4.40. If you got out at $4.00 or better, you got a 50% return.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Dow Jones Industrial Average Index, First Solar 4Q earnings
Posted in Earnings, Option Trades | No Comments »
Tuesday, February 24th, 2009
Research In Motion (RIMM, $38.99, up $1.57) is up 4% today and has made a run back to $40. This morning, I sent out a blog before the market opened to make sure that you set stops on the RIMM positions to protect your profits.
I had mentioned to also close the position on Monday if you got the gains back from Friday. The reason I seem to keep repeating myself is that I want you to understand the importance of placing stops and how the are so important in your everyday trading.
The March 40 puts (RUPOH, $3.50, down $1.20) were profiled at $2.15 last Wednesday and hit a high of $4.15 by Friday and $4.75 on Monday. The return on the trade was over 100%. If you still have the trade open, then you have given back nearly 50% of your profits because of greed. These puts opened at $4.50 this morning and had a stop of $4.30 which protected your 100% return.
The March 35 puts (RUPOG, $1.37, down $0.71) were recommended at 85 cents and traded as high as $1.90 on Friday and $2.15 yesterday. I said to set stops at $1.90 and the puts opened at $1.95. Since then, they have dropped 30%.
The Spider Gold Shares (GLD, $97.80, up $2.03) are another example of a trade that reached our outlined goals and we got out when the returns hit 100%. The trade was based on gold hitting $1,000 and this ETF hitting $100. This trade was closed last Friday when the March 99 calls (GLDCU, $2.15, down $1.28) hit $4.10. The calls were profiled at $2.05 and hit a high of $4.20 on Friday. Now look at them. They are almost right back at our entry level price.
The March 100 calls (GLDCV, $1.90, down $1.20) were recommended at $1.90 and traded to $3.80 which also marked a 100% return. Today, they are down 40% after opening at $2.90.
The General Electric (GE, $8.55, down $0.30) March 7.50 puts (GEWOU, $0.70, up $0.07) traded as high as 73 cents and the exit on them was at 75 cents. Close enough, close the trade.
I just wanted to point these things out because a lot of option traders fail to use stops or hold on to positions for too long after making big gains. By using stops, you take emotions out of the trade and you have measures in place to protect your profits. These are three classic examples of how stops and targets are used and how to manage your trades.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Research in Motion, Spider Gold Shares
Posted in Option Trades, Strategies | No Comments »
Tuesday, February 24th, 2009
AutoZone (AZO, $143.60, up $1.72) continues to defy critics as its stock races towards fresh 52-week highs. On Monday, the stock hit a high of $148.50 on a day the Dow tanked 250 points. I know people are holding off buying new cars but is AutoZone’s benefiting that much?
We were pretty successful in an AutoZone put option trade before earnings a little over three months ago. We rode the stock down on November 19 when it was at $100, all the way to $85 a few days later. The December 75 puts that were profiled went from $1.80 to over $6.00.
Since then, the stock has added 60 points.
The company announces earnings on March 3 and I would hate to step in from of a train with the stock making news highs. So what do we do?
Well, it’s all but certain AutoZone is going to make a huge move between now and then. Specifically, the stock could move $15 or move after announcing earnings. That is based on a 10% move in the stock either way. If those assumptions come true, that would leave the stock at $160 or $130.
The March 160 calls (AZOCL, $2.30, up $0.30) are up 15% today while the March 130 puts (AZOOF, $3.90, down $0.40) are down about 10%. If you bought both of these positions it would be considered a straddle option trade.
This is usually a good strategy if you expect a large movement in the price of a stock, but don’t know whether the price will go up or down. With the release of AutoZone’s quarterly results next week, I’m pretty sure we get at least a 10% swing.
Since we are buying options, this long straddle (short straddles are when you sell options), will profit no matter which way the price of the stock moves, providing the stock moves 10% or move. If the price of the stock goes up, the call options should double and we would take a loss on the put option. If the stock goes down, the put option should do well while the call option would suffer.
As you can see, the puts are more expensive than the calls based on “15 strike” move from where the stock is currently at. The beauty of the long stradle trade is that you can possibly make money on the way up and then make money on the way back down or vice versa. These type of plays have worked well in the past for us and I don’t see why this one won’t. There may be an opportunity to play AutoZone straight up after I get a better feel for where the stock is headed but for now, this is the safer way to play the trade.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone
Posted in Option Trades | No Comments »
Tuesday, February 24th, 2009
The Dow took another step closer to falling below 7,000 yesterday as bears took control of the market shortly after the opening bell. The market started off in positive territory following word the government may help Citigroup (C, $2.14, up $0.09) but the rally was short-lived. The Dow dropped 250 points, or 3.4%, to finish at 7,114. The last time the Dow traded below the 7,000 mark was in October 1997.
The S&P 500 dropped 27 points, or 3.5%, to close at 743 while the Nasdaq tanked 53 points, or 3.7%, and ended at 1,387.
Wow.
And you thought it couldn’t get any worse, right? Despite the market’s woes, we still managed to have a heck of a Monday.
Research In Motion (RIMM, $37.42, down $1.73) continued its selloff as the stock lost another 4%. The 52-week low for RIMM is $35 and the stock is giving all the signs that it wants to go lower. It remains to be seen if support will hold but we already have two huge winners with a couple of put options that were profiled last Wednesday.
The March 40 puts (RUPOH, $4.70, up $1.00) were profiled at $2.15 and hit a high of $4.75 on Monday. The return on the trade is nearly 120%. The 25% gain now allows you to set a stop of $4.30 on the trade if you didn’t close it yesterday. A stop of $4.30 gets you a 100% return. The March 35 puts (RUPOG, $2.10, up $0.50) were recommended at 85 cents and stops can be set at $1.90. The trade is up nearly 150%.
I had mentioned if the RIMM put options traded back to 100% returns to sell them on Monday. We got more than that and then some. The stops are set at 100% return so make sure you set them.
The Dow Jones Industrial Average Index (DJX, $71.15, down $2.51) also did very well. The March 75 puts (DJXOW, $5.25, up $1.40) and the March 74 puts (DJXOV, $4.80, up $1.30) surged as the day wore on. Both trades are now up 70%+…stops are set at $3.85 on the March 75’s and $3.25 on the March 74 puts.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Citigroup, Dow Jones Industrial Average Index, Research in Motion
Posted in Oil | No Comments »
Monday, February 23rd, 2009
General Electric (GE, $8.90, down $0.48) continues to set new 52-week lows after falling below $10 last week. Wow. It is really hard to believe this stock is in the single digits. The stock is getting so cheap to where it can be actually be traded but option traders are still loading up on the puts.
The March 7.50 puts (GEWOU, $0.55, up $0.10) have been pretty active as over 28,000 contracts have traded so far this morning. The put options opened at 30 cents, down 14 cents from Friday’s close as GE’s share price was higher to start the day. However, that has all changed as the Dow has given back all of its gains and is currently down about 80 points to 7,284.
You could buy the puts at current prices and look to exit them at 75 cents with a stop of 25 cents. Very high risk/ high reward trade…
The Dow Jones Industrial Average Index (DJX, $73.08, down $0.58) trades are still worth holding for the time being. The March 75 puts (DJXOW, $4.10, up $0.25) and the March 74 puts (DJXOV, $3.70, up $0.20) continue to do well as the Dow has dipped into negative territory. Consider placing stops at $3.85 on the March 75′s and $3.25 on the March 74 puts.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Dow Jones Industrial Average Index, General Electric
Posted in Option Trades | No Comments »
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