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Thursday, March 26th, 2009
Best Buy (BBY, $38.76, up $5.30) bashed the cover off the ball and reported earnings that were higher than what Wall Street had been expecting. The stock is up over 15% this morning and has traded as high as $38.91 and to a low of $36.79.
Best Buy’s profit fell 23% for the quarter, to $570 million, or $1.35 per share, but the company actually earned $1.61 a share. Best Buy took some restructuring charges which pulled down EPS (earnings per share) but Wall Street had been expecting $1.40 a share. So they did and they didn’t beat earnings depending on what you read as analysts were expecting a $1.40 per share. However, when Best Buy also provided a better-than-expected outlook for the next year, analysts gave them an A+ for their report card and the bulls have made them the teacher’s pet today.
This stock was in the Weekly Wrap’s Monday Morning Playbook and I had targeted the Best Buy April 35 calls (BBYDG, $4.70, up $3.15). As you can see, they are up 200% today on the stock’s surge and we had set a target of $1.00-$1.25 order to get into the position. On Monday, these calls opened at $1.50 and came down to $1.38 but not our $1.00-$1.25 target. However, if you had set a limit order of $1.25 or better to get filled on these contracts, then you were filled yesterday.
In other words, if you had placed a limit order with your broker to buy 10 contracts at $1.25 then you would have been filled yesterday at 2pm when the stock traded to a low of $32.27. A lot of you tell me you can’t always follow the market so that is why I came up with the “playbook” and then update things through the blog.
Most days, I can’t watch the market all day long either so I use limit orders and targets and stops to help me if I’m away from the office. The point is, if you believed that Best Buy was gonna have a super quarter and threw down $1,250, then you are now looking at $4,700. Bingo. A $3,500 profit for planning the trade.
Anyway, you know the drill by now. Set stops at $4.00.
Rick Rouse
Rick@OptionsMentoring.com
Note: United States Steel (X, $24.65, up $1.18) was up right out of the gate and the April 25 calls (XOKDE, $2.35, up $0.65) have not made it down to our $1.40 target. I knew I was probably a day late but not a dollar short for this one so we will have to wait. I don’t think the calls will get below $2.00 so go ahead and cancel this one. It’s getting close to Friday so we will have to be careful with what we leave open.
Tags: Best Buy Earnings
Posted in Earnings, Option Trades | No Comments »
Thursday, March 26th, 2009
Steel stocks have been performing well lately although I’m not excited about the sector. I liked the action in Wednesday’s trading and there are a couple of names I follow on my Watch List for steel. The two major ones are United States Steel (X, $23.47, up $0.15) and Reliance Steel & Aluminum (RS, $27.46, up $1.07). Although Reliance showed the better gain yesterday, U.S. Steel is more active. What I mean by “active” is U.S. Steel averages about 14 million shares traded a day compared to under 2 million for Reliance.
In other words, the stock is more liquid which means the option pits are more active in the higher volume trading stocks. You will also notice that the difference between the bid and ask prices for the more active options are usually 5 cents and sometimes pennies. In the less active option markets for other stocks, the option you are looking at may have a 10 cent difference between the bid and ask.
Usually, when a sector is “hot” the top two or three names move higher than the other stocks in that sector and when trading options you want to look for little things like this. When I looked at the options for these two stocks it was clear that U.S. Steel is more liquid which means we can get better pricing.
I’m looking to “day trade” the U.S. Steel April 25 calls (XOKDE, $1.70, unchanged) for Thursday and Friday and I’m looking to get into these options at $1.40 or better. My initial target will be $2 with a stop at half my entry level level price.
If, after 10am, the calls are trading for $1.40 or under, go ahead and pull the trigger. The stock could be due for a slight pullback as it has started to challenge its 50-day moving average of $25.30. However, U.S. Steel hit a high of $25.74 so it actually penetrated that level and fell back.
Don’t chase when we can replace. If the calls open high than yesterday’s closing price of $1.70 then set your limit at $1.40 and see if the stock comes back to us. If we don’t get into this trade, we still have others open positions so we should enjoy some gains if the rally is broad-based. Having said all of that, the futures are are big-time this morning and we are looking at a strong open which means we may not be able to get into this trade at all.
I’ve been mentioning the 7,600-7,800 level for the Dow and the S&P holding 800 as the keys to the next leg up for the market. And I’ve been targeting Thursday as a huge rally. So far the market is acting like we thought it might and we could end the week with a bang. There will still be some headwinds but the market is looking good right now.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Reliance Steel & Aluminum, United States Steel
Posted in Option Trades, Sectors | No Comments »
Wednesday, March 25th, 2009
It took most of the day but Family Dollar Stores (FDO, $32.10, up $0.82) traded down low enough for us to our get our entry price for the April 32.50 calls (FDODZ, $1.45, up $0.25). These calls opened at $1.35 and traded to a high of $1.60 earlier this morning. However, the stock fell to $31 late in the afternoon which brought the April 32.50 calls down to a low of $1.03.
We were looking for the stock to hold $30 which it did, and since we always wait 30 minutes after the market opens to place orders, all we had to do was set our limit price and wait. I had mentioned that a good area would be the $1.00-$1.10 area and once we got there your order should have automatically been triggered.
If you will recall, we were targeting $1.50 initially for the trade which would put our profits at 50%. We are almost there and by waiting for OUR prices, we were able to get in at our target price and we are looking good for an exit of at least $1.50.
Here is the tricky part and it’s all about how you manage your money. If you were able to get in at $1.05 and bought 10 contracts, it would have cost you $1,050. The beauty of this trade is that if you would have bought these calls at 2pm then a couple of hours later you could have sold them for $1.40-$1.45 and put $400 in your pocket.
As I mentioned the other day, if you can do a couple of these trades a week while limiting your losses then you are well on your way to growing your trading account. Now, if you would have bought these options at the open, you would have paid $1,350 and would have waited all day just to make a $100. By planning the trade and waiting for the stock to come back down to our level, we were able to take all of the emotion of the trade.
Sometimes when the market is acting the way it is, all you can do is look for these types of trades. Making 40% or 50% on a day like today is what option trading is all about. I wanted to show you how you can use limit orders to make money in a stock that is in a strong uptrend and we accomplished that today. I know we didn’t technically hit $1.50 when the market was closing but as I’ve said many times before don’t get greedy.
I think the trade is still going to do okay and if Family Dollar opens lower to start Thursday’s session then your profits could sink a little. If the calls open at $1.25 then you may only have a $200 profit but don’t give it back. I think the stock is still headed higher but I wanted to show you how to get in and out of an option trades quickly and how easy it really is to make $500 in a day. Set stops at $1.25.
As far as Blackstone Group (BX, $7.79, down $0.43), they popped at the open as well but the stock looked weak all day and hopefully you were able to tell by its trading pattern that we were headed lower. The stock broke down like a rented mule and once it broke below $8, I figured it might have trouble making it back above it. Plus, with the market showing solid gains and the fact that Blackstone wasn’t partcipating reaffirmed my instincts to wait for lower prices.
The April 7.50 calls (BXDU, $1.00, down $0.30) just got 30% cheaper from yesterday and hit a low of 80 cents. I liked them yesterday and loved them before the close. The direction of the stock could push it back down to $7 but this trade has three weeks before it expires and I don’t think the action in Blackstone is over quite yet.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Blakstone Group, Family Dollar Stores
Posted in Option Trades, Strategies | No Comments »
Wednesday, March 25th, 2009
There has been a lot of chatter about the prospects of Blackstone Group (BX, $8.22, up $0.41) this week and judging by the stock’s option activity, shares could be headed above $10 quickly. The company is a private equity firm that that could be a key player on how well the selling of the toxic mortgages off bank balance sheets evolves.
Left for dead since September, this stock closed at $6.30 on Friday and had fallen from a high of $20. The stock added $1.50 on Monday and traded as high as $9.19 on Tuesday. I took a look at the option activity from Tuesday and there was a slew of buying all the way out until January 2010. Take a look:
April 7.50 calls (BXDU, $1.29, up $0.09), High: $2.05, volume: 3,500 contracts.
April 10 calls (BXDB, $0.30, unchanged), High: 70 cents, volume: 2,900 contracts.
May 10 calls (BXEB, $0.65, up $0.25), High: $1.10, volume 1,275 contracts.
January 2010 10 calls (KJLAB, $1.75, down $0.10), High: $2.45, volume 5,900 contracts.
Notice the action in the January 2010 call options? These call options are 9 months away and for pigs and giggles, let’s say the stock is at $20 by then. If so, these calls will be worth $10 apiece of 5x their current value.
I also like the April 10 call options as a cheap “out-of-the-money” play but be careful of your entry prices, especially at the open. For those of you new to the blog, we like to wait 20, if not 30 minutes, after the market opens before initiating positions.
If the “bid” and “ask” spread for the call options is 10 cents or more, always remember you can put in a “limit order” to buy options in between these prices. Sometimes they get filled, sometimes they don’t if there is strong demand. If the “bid” for an option is 40 cents and the “ask” is 50 cents, then do a “limit” order for 45 cents.
DO NOT enter market orders. Period. Always enter “limit orders” when you “buy to open” an option contract and when you “sell to close” a contract. If you are having trouble buying the options right that second and don’t want to wait to get filled, then do a “limit order” at the current asking price or else you could get filled at even hire prices.
These technique alone will save you hundreds if not thousands of loot to your bottom line. I would do the “I’m not Geico but I just saved you a bunch of money..” bit on you again but please remember this rule when you start trading options. You control the money and you control the price you are willing to buy and sell an option (to a degree) so take advantage of it.
These are very high risk/ high reward plays.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Blackstone Group, limit orders, market orders
Posted in Hot Stocks, Option Trades, Strategies | No Comments »
Tuesday, March 24th, 2009
Family Dollar Stores (FDO, $31.28, down $0.65) has been in a strong uptrend lately after breaking out above its 20, 50, and 100-day moving averages. After building a solid base in the mid to upper $20′s, the stock broke through $30 earlier this month and has held this level since.
I profiled a trade in Family Dollar back at the beginning of the year that was profitable for 40% in just six days. We played the February 30 calls when the stock was under $27 and got out of them when the stock traded above $28 a week later.
Usually when a stock is making new highs (which FDO is currently doing) it will consolidate for a few weeks before making an assault on newer highs. Retail has been picking up as of late but Family Dollar has been doing well for several quarters.
I think we can capture some of that momentum with the April 32.50 calls (FDODZ, $1.20, down $0.30). The calls traded as high as $1.55 shortly after the open this morning but faded with the rest of the market. I think the stock will still hold $30 but Wednesday will be a test. What I would like to see on Wednesday morning is a lower open for the stock which should allow us to get into the trade for $1.00-$1.10. If not, don’t pay over $1.25 for the call options.
I like this trade for a week or so and if we can get in for around a $1.00, we will set stop losses at 50 cents and a target of $2.00 for the exit. We may only get to a $1.50 or so initially if the stock moves slightly higher and the company is set to report earnings on April 8th. Hopefully, we can get a rally before then but this might be one trade that could do well if left open through the company’s earnings announcement.
This is what I am watching for at the open on Wednesday. I would like to see the market hold its own tomorrow and then get a rally on Thursday and Friday. Watch to see if the S&P can hold 800 and for the Dow…7,600. If we can hold these levels or even move higher then I think we have a good shot of the market moving up.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Family Dollar Stores
Posted in Option Trades | No Comments »
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