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Archive for May, 2009

Just What the Doctor Ordered

Wednesday, May 20th, 2009

12:30pm (EST)

OceanFreight (OCNF, $1.88, up $0.09) had its 15-minutes of fame as the stock hit a high of $2.10 earlier this morning. I mentioned last night to look for an exit above $2 and we were right on point.

The December 2.50 calls (QZVLZ, $0.65, unchanged) traded as high as 90 cents after opening at 80 cents. They were going for 40 cents on Monday and we nabbed our triple-digit return in just three days. Awesome.

These calls can still be traded but as you can see they are getting cheaper by the minute. The calls don’t expire for another 7 months but we didn’t plan on hanging around that long, now did we? There will be a time to trade them again; next week, next month, I don’t know but for now we move on.

Same thing with Cisco Systems (CSCO, $15.56, down $0.31). The July 19 calls (CYQGA, $0.80, down $0.18) were profiled to use with a covered call strategy but some of you got in at 60-65 cents on Monday. Yesterday they hit $1.20 which was good for a double and today they opened at $1.04 which is still 40%.

The action is fast and furious and we have a lot of moving parts right now. However, wait for your entry and exit points and don’t lose sight of the big picture. These positions had longer option expiration dates and when you play with these options it’s okay to take your profits quickly.

The Dow is still holding a positive gain of 12 points at 8,486 but was up triple-digits earlier today. Still, the bulls have had an impressive week….

Rick Rouse
Rick@OptionsMentoring.com

Freeport-McMoRan Breaks $50

Wednesday, May 20th, 2009

10:15am (EST)

Freeport-McMoRan (FCX, $51.81, up $2.29) has been on a major roll since March and is up another 5% this morning. The stock is a frequent guest here in the blog and we have made some good trades in the past playing its options. I made a Watch List for the sector in May of 2008, a month after we launched the blog, when the stock was at $117. The original blog can be read here and it is a good review on setting up Watch Lists.

We went long Freeport-McMoran in early March with the March 35 call options and made a pretty decent return. The real trade was to go out to the June 35 (FPAFG, $17.10, up $2.35) back then. They were probably going for under $2 and THAT would have been a monster of a trade.

Of course, those options are expensive but for option players looking for some more upside, the June 55 calls (FCXFK, $2.10, up $0.70) and June 60 calls (FCXFL, $0.80, up $0.47) are active. The July 60 calls (FCXGL, $1.85, up $0.55) could also do well and you may be able to get better entry prices today.

The chart for Freeport is showing more upside at the moment but it is hard to trust a stock that fell from $70 in September to under $20 in 2 months. However, the decline was steep so the retracement could get interesting. The only thing working against you is the three-day weekend coming up and if these options do well for the rest of the week, I’d look to close them out Friday.

Rick Rouse
Rick@OptionsMentoring.com

Wednesday Wake-Up Call

Wednesday, May 20th, 2009

9:00am (EST)

Cisco Systems (CSCO, $18.88, up $0.16) made a run over $19 as the July 19 calls (CYQGA, $0.98, up $0.10) hit a high of $1.20 yesterday. They opened at 61 cents on Monday. This was a covered call play but some of you may have bought them straight-up. If so, the trade is up to $20 but really the calls should have been sold once they doubled.

ExxonMobil (XOM, $70.52, up $0.02) traded to a high of $71.13. The June 75 calls (XOMFO, $0.45, down $0.09) actually took a fall yesterday after reaching 60 cents. Our entry price was 63 cents and I’m still looking for a run to $72.

Ford Motor (F, $5.63, up $0.13) closed higher for the fourth trading day in a row and the June 5 puts (FRA, $0.21, down $0.06) have been a train wreck. I mentioned the December 6 calls (FLI, $1.26, up $0.05) and the December 7 calls (FLJ, $0.93, up $0.01) as a hedge and they are basically flat from Monday’s prices.

Las Vegas Sands (LVS, $10.01, down $0.29) made a run to $11 and the September 12.50 calls (LVSIC, $1.70, down $0.10) got up to $1.95. We are still even and our near-term target remains $2.50-$2.60 which gets us 50%.

Bank of America (BAC, $11.25, down $0.48) issued 1.25 billion shares at $10.75 a share in the after-hours market last night and raised $13.5 billion. Sneaky, but you got to like the amount of capital the company raised going forward. The shares were trading for $10 and change before rebounding last night as traders were trying to figure out what was going on. BofA had no comment for the longest time but eventually let the cat out of the bag.

Don’t look now but Advanced Micro Devices (AMD, $4.39, up $0.25) came back to life and hit $4.50 on Tuesday.

Rick Rouse
Rick@OptionsMentoring.com

OceanFreight Reports Earnings

Tuesday, May 19th, 2009

7:45pm (EST)

Note: There was a problem with the Weekly Wrap sent out on Sunday night and I apologize if some of you received it late. We had a technical issue sending the newsletter out and some of you may have just gotten it today. The Weekly Wrap is posted Sunday nights here in the blog so if you can always check here if you don’t receive it by midnight.

OceanFreight (OCNF, $1.79, up $0.11) had another solid day before reporting earnings after the bell, adding 6%. The company reported a profit of 13 cents a share on revenues of $2.6 million and in after-hours the stock is up another 7% to $1.92.

I had mentioned in the Weekly Wrap that the stock was getting some heavy looks and on Monday morning the stock was still going for $1.52 after the open. I listed the December 2.50 calls (QZVLZ, $0.64, up $0.05) as an option trade but we were booked. They were going for 40 cents on Monday as well and are now up over 50% in just two days. They could inch up again on Wednesday if the after-hours gain holds.

The point I want to make is that both the stock and options have done well. If you had bought a 1,000 shares on Monday it would have cost you about $1,500. On Wednesday, it looks like you will be able to sell them for $2 and make 33% on you investment. With the options, you could have bought 20 contracts for $800 and sold for 70 cents (probably) on Wednesday. That’s $1,400 or a $600 profit in 48 hours.

The Baltic Dry Index (BDI) is an index for commodity shipping rates that measures dry bulk shipping rates on 40 routes across the world. I use this as a tool to get a read on the sector and when the action is starting to pick back up again. Today, the BDI closed at 2,605 which is a seven month high. We are still well off the heights of 11,000 which was hit in May 2008 but well above the low of 700 in December.

Although business is being conducted at reduced prices the renewed interest is a good sign for the shipping industry. However, we still have to protect our gains in case we run into some stumbling blocks. If you got into any of these trades, set stops accordingly, but hopefully, we can ride the gains for the rest of the week.

BTW, Cisco Systems (CSCO, $18.88, up $0.16) sneezed and made it to $19.35 before slipping…

Rick Rouse
Rick@OptionsMentoring.com

Looking at India

Tuesday, May 19th, 2009

11:00pm (EST)

I’ve gotten quite a few emails asking about India’s stock market (Bombay Stock Exchange) after it zoomed 17% on Monday. The index rose a staggering 2,110 points, or 17.3% to be exact, to 14,284, and triggered a temporary trading halt after the ruling coalition sealed a decisive election victory that calmed fears of political uncertainty.

Political events are market movers and the election over the weekend meant big gains for investors who were long some India names on Friday. If you don’t have the time or means to purchase individual Indian stocks, you can look at ETF’s (exchange-traded funds) if you believe there may be a prolonged rally.

Some stocks that have India exposure would include Tata Motors (TTM, $9.10, up $0.03) which moved from $7.60 to over $9 yesterday, Icici Bank (IBN, $29.88, up $0.59) which jumped $6 on Monday, Dr. Reddy’s Laboratories (RDY, $13.14, up $0.35) and Infosys Technologies (INFY, $33.23, down $1.67). If you are looking for an ETF, try WisdomTree India Earnings (EPI, $16.81, down $0.37).

I didn’t list any options and you should do some more homework before jumping in any of these names, long or short.

Okay, twist my arm. I don’t want to be like a blister and show up after the work is done, so just in case…the Icici Bank June 35 calls (IBNFG, $0.85, down $0.05) are trading for under a buck but the stock has serious resistance at $30.

Rick Rouse
Rick@OptionsMentoring.com

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