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Wednesday, August 26th, 2009
12:30pm (EST)
Human Genome Sciences (HGSI, $21.84, up $2.62) is up again today on more takeover chatter. The stock made a move from $17 to $19 yesterday and I have been watching the option pits to see how serious this news is.
I have profiled and discussed takeover stocks and trades in the past and sometimes you can have luck with them and sometimes they are just a bunch of hot air. Here is a blog I did back on November 18th, 2008 when Anheuser-Busch was bought out by InBev. The article has some good points and it is an interesting read. (QUOTES are from that day):
This Bud Is For Its Shareholders
Nah, Nah, Nah, Nah…Hey, Hey…Goodbye!
It’s in the books. Shareholders of Anheuser-Busch (BUD, $66.33, down $0.51) approved the $52 billion sale of its beer business to Belgium-based InBev today. The two companies will create the world’s largest brewer.
The was the last step needed to form the company that will be now be known as Anheuser-Busch InBev. Yeah, its sucks to lose an American icon but the shareholders got a great deal. Not to mention the beer list the company touts. Bud/ Bud Light, Stella Artois and Beck’s. Gee, I wonder if they will create a variety pack.
I’ve been mentioning this deal for months and we actually went long on some Anheuser-Busch option calls when the rumor was floating around. I also mentioned in late October when the stock was in the upper $50’s that you should consider a stock trade because the deal was expected to close by the end of the year. Although the merger is subject to regulatory approval in the U.S., Britain and China, the buyout offer is $70 a share.
The gains from making that trade were about 20% but the key was that it was a safe trade in a volatile market. As option traders, yeah, we like to trade options but there are times where you have a situation like this one and you have to buy the stock instead of trading options. True, it would have tied up a lot more capital – buying 100 shares would have cost $5,700 – but the return was pretty much guaranteed with the buyout priced at $70. When the stock was at $57 you should have realized that there was still $13 to go which gives you a 23% return.
The stock may have been down today but eventually it will get to $69-$70 a share. Even at today’s closing price there is still 8% to go. It’s what is known as arbitrage on Wall Street, a risk-free profit. Although I always prefer options over stocks this is one time where the stock was a better bet.” (END)
Now, back to HGSI. When the news broke yesterday that GlaxoSmithKline is preparing a bid for the company I went straight to the option pits. Glaxo wants to gain full control of the promising lupus drug Benlysta and the two companies worked together to develop the drug and two other products.
There was huge volume on the call options yesterday and that is the case again today. The first thing to remember though is that these options are commanding a premium right now because of the news. There is a buyout number of $30 a share being tossed around and at current levels that would be another 50% move for the stock.
The September 25 calls (HQIIE, $1.40, up $0.65) closed at 75 cents yesterday and I knew they would get another pop this morning if rumors persisted. However, I didn’t want to talk about a trade this morning because I didn’t want you buying anything at the open.
A lot of traders get excited on this kind of news and it would have been nice to get you in yesterday but I had to do more research. Now, for those investors that rushed in this morning to buy these call options, they paid up to $1.90 at the open as the stock ran up to a high of $22.78.
If you would have bought 10 contracts you would be down $500 already. There has been over 8,000 contracts traded so far and the September 30 calls (HQIIF, $0.50, up $0.40) have traded 2,500 contracts but that is what the expected buyout price is going to be.
The October 25 calls (HQIJE, $2.10, up $0.85) have traded nearly 4,000 contracts and have hit a high of $2.75.
If you buy the September 25’s at $1.40 and the buyout comes before September 18th for $30 then these call options should trade between $4-$5. Same thing for the October calls.
It is a risky trade and one that I’m not getting in. I will profile the September 25’s for the track record so we will see what happens.
Other notes….
International Business Machines (IBM, $118.92, up $0.09) has traded $120 for 3 straight trading sessions heading into today. We made some monster profits with IBM back in July when the stock made a huge move after earnings. I profiled three trades that returned 245%, 258% and 335%. Those trades were perfect for the move IBM made.
Since we’ve been out of those trades I have been saying to watch IBM for a move to over $120. Well, here we are. Keep watching IBM and this development but I’m a little hesitant to go long right now.
Important Update 1:00PM (EST): The HGSI September 25 calls (HQIIE, $0.70, down $0.05) as the stock has dipped back down to $20. I would pull the trigger on 1/2 a trade if you are buying the rumor. If you can get a pop back to $1.50, close the trade.
Rick@MomentumOptionsTrading.com
Tags: BUD, hgsi, Human Genome Sciences, IBM, InBev, options trading strategies
Posted in Company Commentary, Hot Stocks, Option Trades | No Comments »
Wednesday, August 26th, 2009
9:25am (EST)
Bank of America (BAC, $17.75, up $0.40)
January 20 calls (BYOAT, $1.45, up $0.10)
Entry Price: $1.18 (8/12/09)
Exit Target: $2.20, lower to $1.80
Return: 23%
Stop: $1.20, raise to $1.25
Action: BofA made another run to $18 and the call options traded as high as $1.58. Yesterday’s high on the call options reached $1.63. BofA was one of the stronger stocks but this may be telling us something. I raised the stop up another 5 cents and wanted to raise it to $1.30 but I really don’t want the market to take us out of this trade. I lowered the exit target as well which would give us a 50% return if hit…
Citigroup (C, $4.75, down $0.07)
January 7.50 calls (CAQ, $0.275, down $0.02)
Entry Price: $0.14 (8/12/09)
Exit Target: 50 cents (sold half on 8/24/09 at 30 cents)
Return: 114%
Stop: 21 cents
January (2011) 10 calls (VRNAB, $0.52, down $0.06)
Entry Price: $0.40 (8/12/09)
Exit Target: CLOSED (8/25/09)
Return: 45%
Stop: 50 cents
Action: The 7.50’s have a stop of 21 cents and the calls traded to a low of 23 cents. The 10’s technically hit our stop of 50 cents so this side of the trade should have been closed. Don’t get me wrong, I still like these calls…a ton. However, I am hear to make you money both short and long term. We already took 100% profits on half the 7.50’s and the 10’s returned 25%. If Citigroup trades lower then we decide a good price to get back in. If Citigroup trades above $5 and starts moving up then we can buy a September or October call option if we feel it is going to $6 or $7.
Imax (IMAX, $9.35, down $0.36)
September 7.50 calls (IMQIU, $1.85, down $0.35)
Entry Price: $1.90 (8/4/09)
Exit Target: CLOSED (8/25/09)
Return: 0%
Stop: $1.90
March 2010 12.50 calls (IMQCV, $0.60, flat)
Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Return: 33%
Stop: None
Action: Here is what I said yesterday…”I lowered the exit target on the September calls because Imax is not a fast mover. Yes, we did challenge $10 today but if the stock continues to struggle with that area we will manage the position for a profit. Ideally, we would like to see a strong breakout above $10 and hold”.
That didn’t happen. Now, this is important. We were stopped out of the September calls and we ended up flat for a return. I profiled the September trade on August 4th so we have been holding those options for nearly 3 weeks. If Imax is range bound between $9 and $10 until September then the calls were either going to be worth $1.50 (Imax at $9) or $2.50 (Imax at $10).
The other side of the coin for this trade is the March options. There is NO STOP. We know Imax doesn’t make BIG moves put if it can add a $1 a month to its share price between now and March then we are looking at a $15-$16 stock. That makes the March 12.50’s worth $2.50 or $3.50. If Imax falls back to $7 then these options will probably be worth 5 cents but I like the Imax story.
Potash (POT, $93.94, down $2.33)
September 110 calls (PYPIB, $0.60, down $0.20)
Entry Price: $1.35 (8/20/09)
Exit Target: CLOSED (8/25/09)
Return: -56%
Stop: 65 cents, lower to 60 cents
Action: What a debacle. I knew when I lowered the stop Monday night we were in trouble. I tried to buy us some wiggle room but Potash faked me out this time. The stock made a run at $100 and I thought there would be some follow thru once we got up there. Potash managed to hit $99 shortly after we entered the trade but faded like an old summer shirt once it got to this level. Potash is a big mover so there is still a chance for a rebound. However, once our stop was hit we had to move on.
Sirius XM (SIRI, $0.69, down $0.03)
December 1 calls (QXOLA, $0.15, flat)
Entry Price: $0.15 (8/21/09)
Exit Target: $0.30
Return: 0%
Stop: None
Action: Continue to hold.
Tags: bac, c, Imax, option picks, POT, siri
Posted in Option Trades | No Comments »
Tuesday, August 25th, 2009
1:00pm (EST)
The market has hit 10-month highs as the Dow is currently up 80 points to 9,589. The Nasdaq is showing a gain of 15 points and stands at 2,033 while the S&P 500 has jumped 8 and is 1,034.
I mentioned in the Weekly Wrap that economic news would take on more meaning this week as earnings wound down and today’s rally can be attributed to the consumer confidence data and the housing figures. Home prices rose for the 2nd consecutive month and when you throw in the Bernanke bonus it’s easy to see why the bulls have taken this market higher.
Homebuilding stocks (add to you Watch List) are getting a pop as Pulte Homes (PHM, $13.12, up $0.51), Lennar (LEN, $15.27, up $0.70) and KB Home (KBH, $18.15, up $0.65) are up 4%-5%. Lennar was a huge winner on the short side a few years ago. Here were my thoughts two years ago:
Lennar on 07/10/07:
“With the housing market showing no signs of recovery any time soon it may be time to take a look at some of the stocks in the sector that could be headed lower. While we may have arrived to the party late, I certainly don’t think the party’s over as the whole group could see continued new lows. Although it’s hard to predict where the bottom is for some of these stocks, I believe they could still see another 15% to 20% drop. As such, if my forecast is right, Lennar ($34.86, down $1.45) could be headed below $30.”
A note on Watch Lists. This is how you find trades and this is how you keep track of sectors. We have had a lot of new subscribers this week and I often talk about keeping Watch Lists as a way to keep track of sectors and possible trades. Look, when one sector gets hot, another gets cold. Money moves in, money moves out. It’s an endless game we play and we can go long or short. That is the beauty of it all, folks. It makes what we do the coolest job in the world.
Speaking of which, have you seen the action in Fannie Mae (FNM, $1.88, up $0.18) and Freddie Mac (FRE, $2.14, up $0.09)? Up 20%-30% yesterday on huge volume. These two stocks were also a favorite punching bag of mine on the way down. In fact, if you research this blog from July 2007 you will see where I profiled trades that returned 140%, 150% and even 216%.
I wanted to point some of these things out because the trading manual I have been working on is nearly complete. We are also entering a “trader’s market” and I am almost 100% certain the volatility is going to pick-up even more so. You have seen us take quick gains and it is okay to take a 100% return on half your profits and close the rest when they hit their stops.
You have to remember…there is always a trade and we are all about making money. However, a lot of beginning investors will lose their profits because they don’t have a feel for the market or they think a losing position will come back. On the flip side of that, some investors get a 100% return only to have visions of making 200% or 500% in a week. In the meantime, they start to lose that 100% profit and end up taking a loss on the trade. I’ve seen it time and time again. So watch your stops and take profits a little early if you see something you don’t like.
Rick@MomentumOptionsTrading.com
Tags: Fannie Mae, FNM, FRE, Freddie Mac, KB Home, KBH, LEN, Lennar, options trading strategies, PHM, Pulte Homes
Posted in Company Commentary, Economic News, Sectors, Strategies, Trading Tips, Watch Lists | No Comments »
Tuesday, August 25th, 2009
9:40am (EST)
I waited a few minutes to see how we opened so I could give you an early read on our trades.
Bank of America (BAC, $17.70, up $0.35), Citigroup (C, $4.89, up $0.07), Imax (IMAX, $9.72, up $0.02), Potash (POT, $97.40, up $1.13) and Sirius XM (SIRI, $0.73, up $0.01) have all opened in positive territory.
Exxon Mobil (XOM, $71.84, up $0.54) has been on a roll since last Monday, rising from $66 to $72. I was watching this stock thinking, gee, Exxon at $66? That was $6 ago and the September 70 calls (XOMIN, $2.55, up $0.23) have doubled since then. I’m not ready to open any new positions because we have plenty of trades already open but I should have known the bounce from $66 was the play. I’ve covered Exxon numerous times in the past and the mid $60 level was the chance to get long. I missed it but I don’t want to chase here.
Federal Reserve Chairman Ben Bernanke got another term and the market seemed to like the news. Although not enough people give the dude credit, he did help the economy and kept us out of recession. The Dow is currently up 30 points to 9,540 as I go to press.
Rick@MomentumOptionsTrading.com
Tags: bac, Bank of America, c, Citigroup, Exxon Mobil, Imax, POT, Potash, siri, Sirius XM, XOM
Posted in Option Trades | No Comments »
Monday, August 24th, 2009
9:30pm (EST)
I didn’t like the afternoon action today as the market came off its highs. The futures are slightly lower as I head to press and we will have to watch the action closely this week. With earnings season winding to a close, economic reports will take on more meaning…
Bank of America (BAC, $17.35, down $0.11)
January 20 calls (BYOAT, $1.35, flat)
Entry Price: $1.18 (8/12/09)
Exit Target: $2.20
Return: 14%
Stop: $1.15, raise to $1.20
Action: BofA made a run to over $18 and the call options traded as high as $1.63. The financials stocks sold off just after mid-day and it was a disappointment they couldn’t close out on a more positive note. Hopefully this isn’t a reversal but we raised the stop just in case.
Citigroup (C, $4.82, up $0.12)
January 7.50 calls (CAQ, $0.27, up $0.02)
Entry Price: $0.14 (8/12/09)
Exit Target: 50 cents (sold half on 8/24/09 at 30 cents)
Return: 114%
Stop: 21 cents
January (2011) 10 calls (VRNAB, $0.57, up $0.08)
Entry Price: $0.40 (8/12/09)
Exit Target: 80 cents
Return: 45%
Stop: 50 cents
Action: I did mention today to close half of the trade if you hit a 100% return because the rest would be house money we played with. As far as the 2011 10 call options there was a chance at a 50% profit but let’s just keep the stop of 50 cents in place. That represents a return of 25% and we will honor the stop on the 7.50’s as well. At 27 cents, these calls are still a double so make sure you close the trade if Citigroup hits our stops.
Imax (IMAX, $9.71, up $0.16)
September 7.50 calls (IMQIU, $2.20, up $0.15)
Entry Price: $1.90 (8/4/09)
Exit Target: $3.00, lower to $2.60
Return: 16%
Stop: $1.50, raise to $1.90
March 2010 12.50 calls (IMQCV, $0.60, up $0.15)
Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Return: 33%
Stop: None
Action: I lowered the exit target on the September calls because Imax is not a fast mover. Yes, we did challenge $10 today but if the stock continues to struggle with that area we will manage the position for a profit. Ideally, we would like to see a strong breakout abover $10 and hold.
Potash (POT, $96.27, up $0.23)
September 110 calls (PYPIB, $0.80, down $0.30)
Entry Price: $1.35 (8/20/09)
Exit Target: $2.10+
Return: -37%
Stop: 65 cents, lower to 60 cents
Action: Nasty. After hitting a high of $1.45 the bottom fell out after shares hit $99. The premiums lost a lot of juice on the way back down although Potash ended the day with a small gain. I lowered the stop to give us a little wiggle room but this one is pretty close to hitting it anyway.
Sirius XM (SIRI, $0.73, up $0.03)
December 1 calls (QXOLA, $0.15, flat)
Entry Price: $0.15 (8/21/09)
Exit Target: $0.30
Return: 0%
Stop: none
Action: Take this trade for what it’s worth. To buy a 1000 shares at current prices would cost you about $730. To control a 1,000 shares which would be the case if you bought 10 option contracts will only cost you about $150. This is still a risky play either way you slice it and Sirius is bleeding money. Their balance sheet is a disaster but we are only risking a small amount of capital on this trade. If the stock can make it to $2 which could be a cold day in hell, then these options would be worth at least a $1 apiece or $1,000 if you had 10 contracts. See the leverage?
Tags: bac, Bank of America, c, Citigroup, Imax, options trading strategies, POT, Potash, siri, Sirius XM
Posted in Option Trades | No Comments »
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Human Genome Sciences Takeover Target?
Wednesday, August 26th, 2009
12:30pm (EST)
Human Genome Sciences (HGSI, $21.84, up $2.62) is up again today on more takeover chatter. The stock made a move from $17 to $19 yesterday and I have been watching the option pits to see how serious this news is.
I have profiled and discussed takeover stocks and trades in the past and sometimes you can have luck with them and sometimes they are just a bunch of hot air. Here is a blog I did back on November 18th, 2008 when Anheuser-Busch was bought out by InBev. The article has some good points and it is an interesting read. (QUOTES are from that day):
This Bud Is For Its Shareholders
Nah, Nah, Nah, Nah…Hey, Hey…Goodbye!
It’s in the books. Shareholders of Anheuser-Busch (BUD, $66.33, down $0.51) approved the $52 billion sale of its beer business to Belgium-based InBev today. The two companies will create the world’s largest brewer.
The was the last step needed to form the company that will be now be known as Anheuser-Busch InBev. Yeah, its sucks to lose an American icon but the shareholders got a great deal. Not to mention the beer list the company touts. Bud/ Bud Light, Stella Artois and Beck’s. Gee, I wonder if they will create a variety pack.
I’ve been mentioning this deal for months and we actually went long on some Anheuser-Busch option calls when the rumor was floating around. I also mentioned in late October when the stock was in the upper $50’s that you should consider a stock trade because the deal was expected to close by the end of the year. Although the merger is subject to regulatory approval in the U.S., Britain and China, the buyout offer is $70 a share.
The gains from making that trade were about 20% but the key was that it was a safe trade in a volatile market. As option traders, yeah, we like to trade options but there are times where you have a situation like this one and you have to buy the stock instead of trading options. True, it would have tied up a lot more capital – buying 100 shares would have cost $5,700 – but the return was pretty much guaranteed with the buyout priced at $70. When the stock was at $57 you should have realized that there was still $13 to go which gives you a 23% return.
The stock may have been down today but eventually it will get to $69-$70 a share. Even at today’s closing price there is still 8% to go. It’s what is known as arbitrage on Wall Street, a risk-free profit. Although I always prefer options over stocks this is one time where the stock was a better bet.” (END)
Now, back to HGSI. When the news broke yesterday that GlaxoSmithKline is preparing a bid for the company I went straight to the option pits. Glaxo wants to gain full control of the promising lupus drug Benlysta and the two companies worked together to develop the drug and two other products.
There was huge volume on the call options yesterday and that is the case again today. The first thing to remember though is that these options are commanding a premium right now because of the news. There is a buyout number of $30 a share being tossed around and at current levels that would be another 50% move for the stock.
The September 25 calls (HQIIE, $1.40, up $0.65) closed at 75 cents yesterday and I knew they would get another pop this morning if rumors persisted. However, I didn’t want to talk about a trade this morning because I didn’t want you buying anything at the open.
A lot of traders get excited on this kind of news and it would have been nice to get you in yesterday but I had to do more research. Now, for those investors that rushed in this morning to buy these call options, they paid up to $1.90 at the open as the stock ran up to a high of $22.78.
If you would have bought 10 contracts you would be down $500 already. There has been over 8,000 contracts traded so far and the September 30 calls (HQIIF, $0.50, up $0.40) have traded 2,500 contracts but that is what the expected buyout price is going to be.
The October 25 calls (HQIJE, $2.10, up $0.85) have traded nearly 4,000 contracts and have hit a high of $2.75.
If you buy the September 25’s at $1.40 and the buyout comes before September 18th for $30 then these call options should trade between $4-$5. Same thing for the October calls.
It is a risky trade and one that I’m not getting in. I will profile the September 25’s for the track record so we will see what happens.
Other notes….
International Business Machines (IBM, $118.92, up $0.09) has traded $120 for 3 straight trading sessions heading into today. We made some monster profits with IBM back in July when the stock made a huge move after earnings. I profiled three trades that returned 245%, 258% and 335%. Those trades were perfect for the move IBM made.
Since we’ve been out of those trades I have been saying to watch IBM for a move to over $120. Well, here we are. Keep watching IBM and this development but I’m a little hesitant to go long right now.
Important Update 1:00PM (EST): The HGSI September 25 calls (HQIIE, $0.70, down $0.05) as the stock has dipped back down to $20. I would pull the trigger on 1/2 a trade if you are buying the rumor. If you can get a pop back to $1.50, close the trade.
Rick@MomentumOptionsTrading.com
Tags: BUD, hgsi, Human Genome Sciences, IBM, InBev, options trading strategies
Posted in Company Commentary, Hot Stocks, Option Trades | No Comments »