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Sunday, January 31st, 2010
3:30pm (EST)
The market got off to a good start on Friday after a strong fourth-quarter gross domestic product (GDP) report showed a nearly 6% expansion in the U.S. economy. It marked the fastest rate of growth since the end of 2003 and the bulls loved it. The Dow raced out to an early triple-digit gain and reached a high of 10,272 but that energy faded once again as the index finished the day with 53 point loss and left the Dow at 10,067.
The S&P 500 fell 10 points and settled at 1,073 while the Nasdaq continued to lead the way with heavier losses, falling 1.5%, or 31 points to close at 2,147. The signs have been there, folks, and the weakness is no surprise. All three indexes are trending below their moving averages and it remains to be seen if the bulls buy this dip or finally take a break from the run they started last March.
For the month the Dow was down 3% and after hitting a high of 10,767 on January 14th, it gave back 700 points in two weeks. For the record, we said the Dow had a chance of reaching 10,800 back in August before we faded or headed higher…
The S&P 500 finished January with a loss of 2.7% while the Nasdaq tanked 3.9%. In August, we set our targets at 1,175 for the S&P 500 and for the Nasdaq we had set a year-end 2009 target of 2,275 for the index which was busted by Christmas.
We thought if 4Q earnings came in solid there would be a chance the market sets new highs. Earnings have been more than solid…they have been stellar. The problem is the rhetoric coming out of Washington. The CBOE Volatility Index (VIX, 24.63, up 0.89) is telling us the market will continue to be volatile and as options traders it means it is one of the best times for trading.
We have been preparing you for a market decline and the ”pullback” could turn out to be a decent “correction” if the Dow falls below 10,000. We didn’t want to use the word “major” when we mentioned correction although a 10% correction is a major deal. The thing is we have already had a 5% decline and the rest of America won’t even notice the other 5% unless the Dow drops below 10,000.
Last weekend, we sent out the portfolio update and even included a “free” option pick for those of you who read between the lines. Here is what we said:
“A lot of investors get nervous when the markets tanks or starts to correct but we love it. We’re like a chameleon, we change colors. Folks, if the market is in correction mode then you can make just as much money on the downside as you can on the way up. We still expect some kind of bounce but that may not come until the bears are done pushing.
For instance, we talked about the weakness in Goldman Sachs (GS, $154.12, down $6.75) on Thursday and Friday it dropped another $3 from our 1pm update. Some options traders did well buying Goldman put options. The February 150 puts (GPYNJ, $4.59, up $2.44) jumped over 110% on Friday.
We show you this stuff because you can make just as much with put options as you can call options. So, if the market is going to tank, don’t be nervous. The opportunity the volatility is providing right now is incredible.” (END)
Goldman Sachs dropped 3% on Friday and closed at $148.72. The February 150 puts are at $5.85, or 25% higher than a week ago. Of course, the options traded lower throughout the week before making a huge jump on Friday again but the trend in Goldman has been lower and we wanted to prove to you that money can be made in volatile markets.
Goldman Sachs will continue to be bumpy and we aren’t sure if there is continued weakness in the shares or if they rally back. The company was humbled along with the rest of Wall Street in 2008 when the financial markets crashed and with the help of Washington, turned itself into a commercial bank holding company in September 2008.
This could all change again as Goldman will probably relinquish its “bank” title and go back to a private equity firm. Since they have paid back the TARP, we think it would be a wise move so that they can get away from the restrictions of “Obamanomics” and can go back to doing what it does best and that is making money in the equity markets.
Given the current market conditions, we think it’s still best to keep a mixture of both call and put options in your portfolio but we are leaning more towards put options over the near-term.
We wanted to get the Weekly Wrap out a little early today because we know many of you are nervous and may not know how to play a bear market or a volatile one. We are working on the current trade updates and we really like the opportunities we are seeing in certain stocks. In fact, we think one of the BIGGEST trades of the year is setting up right in front of our eyes.
Folks, it’s rare we get this excited about a trade but we are looking at options that could turn $500 in $25,000 by the end June or $1,000 into $25,000 by September. If you don’t have that much then $50 or $100 could turn into $2,500.
As you know, option trading is risky but we will show you a trade on Monday that has the potential for these kinds of returns. We will show you the options and do the math for you to prove that the potential is there. Of course, the risk is that the stock doesn’t do what we want it to but we think the rewards will far outweigh the risks.
We will back in the morning with the updates and we are also working hard to get the updated option symbol terminology posted tonight in the Members Area.
Tags: option picks, option signals, options alerts, stock options trading
Posted in Hot Stocks, Strategies, Trading Psychology, Trading Tips, Weekly Wrap | Comments Off
Friday, January 29th, 2010
12:45pm (EST)
The bulls showed up today to try and take the market into positive territory for the month but they have a long way to go. We have talked about how Wall Street uses January as a barometer to gauge how the market might trade for 2010 so we knew we would probably go higher today.
The theory goes that if the Dow ends January higher there is usually a pretty good chance the market ends higher for the year. If the index is lower, the market ends the year with a loss.
Based on this theory we thought the bulls would show up yesterday as well because they needed a couple of hundred points to take the Dow into positive territory for the month. They lost 100 yesterday so we are about 300 points away…Currently, the Dow is at 10,145, up 25 points and would need to reach 10,428 for the bulls to pull this one off.
If the Dow does end the month for a loss, we don’t think it’s a slam dunk we end 2010 lower but the current market environment feels like we are going lower over the near-term despite today’s rally.
We wanted to do an update on Amazon.com (AMZN, $129.00, up $2.97) now that we can give you exact prices for the strangle trade we talked about yesterday. Here were our comments:
“The premiums are probably overpriced or super rich for Amazon.com (AMZN, $123.19, up $0.44) which is why we won’t play this one but the ideal place to try and do this trade would be at the $125 level.
The February 135 calls (QZNBG, $2.90, down $0.05) and the February 115 puts (QZNNC, $3.80, flat) would cost $6.70 or $670 for just one contract of each which is why we said the premiums are rich and we are NOT doing the trade.”
If we take the current prices for these options the calls are at $2.16, down $1.42 while the puts are at 90 cents, down $2.30. This is only $3+ in premium so you would be down 50%.
The strangle trade with Netflix (NFLX, $63.15, up $0.11) wasn’t priced as rich as Amazon’s and we used both of these trades to show the risks of not knowing what to look for. One trade would have returned 200% while the other was a loser.
We have received a tremendous amount of feedback from our subscribers wanting these types of trades so we will be offering them in the future at no additional charge. However, please remember these types of trades won’t be as frequent because we have to find the right candidates and we need movement of 10%. In other words, they are a little harder to find.
Special Announcement: We have told you about the new changes coming to the options market and it looks like it is right around the corner. New options tickers will take effect on February 12th and some financial sites are already using the updated 21-character symbols.
We will be talking about these changes in the Members Area THIS weekend as we also begin to implement the new ticker symbols.
One bit of good news…Berkshire Hathaway Class B (BRK/B, $77.44, up $3.69) continues its recent surge and our subscribers are enjoying some HUGE gains on the call options we recommended last Thursday. At current levels, the trade is up 200%. We have locked in profits on half but we think this stock easily runs to $100 sometime this year.
Tags: option picks, option signals, options alerts, stock options trading
Posted in Company Commentary, Market Analysis, Market Commentary, Option Trades, strangle option trades, Strategies | Comments Off
Friday, January 29th, 2010
9:05am (EST)
The bears took another critical step towards gaining full control of the market on Thursday after taking the Dow down 115 points to 10,120. The bulls showed up for about 20 minutes yesterday then bailed as the market awaited Ben Bernanke’s future. Drama over, he is with us for another term.
Selling pressure picked up as the Dow sank to a low of 10,055 as the market awaited the Bernanke news but came off its lows only to drop again into the close. The S&P 500 also fell a little over 1% as the index lost 13 points to close at 1,084. However, the most damage occurred in the Nasdaq as it sank 42 points, or 1.9%, and closed at 2,179.
There are plenty of earnings reports to talk about this morning but we want to focus on Amazon.com’s (AMZN, $126.03, up $3.28). The company reported a profit of $384 million, or $0.85 a share, versus $225 million, or $0.52, in the year-earlier period. Revenue rose 42% as Amazon.com stated the 2009 holiday shopping season was its best ever.
Wall Street had been expecting a profit of 72 cents on $9 billion in revenue.
We profiled an Amazon strangle option trade in yesterday’s 1pm update after showing you how these trades would have worked with Netflix (NFLX, $63.04, up $12.07) for a 200% return.
The Amazon February 135 calls (QZNBG, $3.60, up $0.65) and the February 115 puts (QZNNC, $3.20, down $0.60) would cost $6.70 or $670 for one contract of each when we profiled the trade. The calls traded higher after our 1pm update while the puts traded lower but the same amount was still at stake going into the closing bell.
The volatility was insane once the company announced earnings though. In after-hours last night the shares opened lower and traded down to $115 before rebounding to trade to a high of $131. Shares ended at $129 and this morning in pre-market trading the stock is right at those levels.
We will have to update how this trade would have done in our 1pm update but we told you yesterday the premiums were rich. Amazon might not get the move to make this a successful play which is why we avoided it but shares will be on the move.
We are looking at a strong open this morning as the Dow futures are up 70 points while the S&P 500 futures are up 9. The Nasdaq futures are up 16.
Tags: option picks, option signals, options alerts, stock options trading
Posted in Company Commentary, Earnings, Hot Stocks, Market Analysis, Market Commentary | Comments Off
Thursday, January 28th, 2010
12:45pm (EST)
The market is repeating a familiar pattern as the Dow is down nearly 151 points to 10,084. Geez, it looks like we are going below 10,000 as the bulls are nowhere to be found. That’s okay. We LOVE the thought of a correction and would welcome it with open arms.
After a decent open, stocks are selling off on some disappointing economic news.
Unemployment benefits fell modestly, dropping to 470,000 last week. Wall Street was hoping for much more and had been expecting a bigger drop to 450,000 new unemployment filings.
The durable goods report also is weighing on the market. Orders to U.S. factories rose less than expected in December, increasing just 0.3%. The market was expecting a 2% increase in orders.
We wanted to do a follow-up to the Netflix (NFLX, $61.68, up $10.71) trade from this morning. The response we got to adding these trades to your arsenal in just the first 4 hours has been an overwhelming “yes” which was not surprising once you see the results.
The trade is known as a “strangle” option play and they provide protection on a fast moving stock. The beauty of the trade is that you can be wrong on direction and still double your money but there are other features that are cool.
The February 55 calls (QNQBK, $7.15, up $5.70) which closed at $1.35 yesterday are up a whopping 400%. The February 45 puts (QNQNI, $0.05, down $0.90) are down 95%.
It would have cost you $2300 to buy 10 contracts of each yesterday before the closing bell and if you sold the calls right now you would have $7,150 in your account. Folks that is a return of over 200%!
This looks good on paper but please realize if the stock would have stayed flat or only moved 2%-3% then the trade probably would have lost money today. You also have to watch the price you pay for premiums.
Since the call options have been closed all you would need to do is let the put options expire worthless. However, they are still active so what happens if Netflix retreats from these levels?
Well, we don’t think that it’s likely the stock falls below $45 by the time these options expire because the Wall Street robots are out in droves upgrading the stock. There have been 7 UPGRADES from the brokerage houses this morning when most of the same knuckleheads had a “hold’ or “sell” rating on the shares.
If by some rare event Netflix does fall to $40 then your puts would be worth $5 and you have another $5,000 in your account. This can happen and some of the BEST strangle (and straddle) option trades are on Drug stocks.
We mentioned in November that we felt Netflix had a shot at $80 by June. We recommended a trade in the June 80 calls (QNQFP, $1.30, up $1.15) at $1.65 back then. We were stopped out at $1.25 because we saw the market punishing the stock for no reason. Wall Street started downgrading the stock right after we got in.
It’s amazing to see that the June 80′s closed at 15 cents yesterday and are up over 750% today! Wow…
We wanted to show you all of this stuff because often times Wall Street is too quick to fall in-and-out love with a sector or stock. This is where we make our money by staying one step ahead of them. They may have shaken us out for a small loss but we think there are going to plenty of new trades down the road for Netflix as well.
Since our response was so overwhelming we thought we would profile another strangle option trade to show you how it plays out. However, this is not an official recommendation because we haven’t done the leg work and we are winging it.
The premiums are probably overpriced or super rich for Amazon.com (AMZN, $123.19, up $0.44) which is why we won’t play this one but the ideal place to try and do this trade would be at the $125 level.
The February 135 calls (QZNBG, $2.90, down $0.05) and the February 115 puts (QZNNC, $3.80, flat) would cost $6.70 or $670 for just one contract of each which is why we said the premiums are rich and we are NOT doing the trade.
We will leave it there and do a follow-up in the morning. Amazon reports after the bell.
Toyota Motor (TM, $76.95, down $2.82) continues to get pounded after another massive recall concerning their gas pedals. Shares dropped $7 yesterday and could be headed to $75 where there is support. If that level is broken, the stock could be headed back to the ‘60’s.
Tags: Netflix earnings, option picks, option signals, options alerts, stock options trading, Toyota Tanks
Posted in Company Commentary, Earnings, Hot Stocks, Market Commentary, Option Trades | Comments Off
Thursday, January 28th, 2010
9:05am (EST)
The market managed to edge out a slight gain yesterday after spending most of the session in the red. Things changed after the Federal Open Market Committee (FOMC) announced to keep interest rates at their current levels for an extended period of time. The bulls liked the news and the market started moving higher gaining momentum into the close.
The Dow finished the day with a 43 point win and closed at 10,236. The S&P 500 closed with an increase of 5 points and settled at 1,095 while the Nasdaq tacked on 17 points and stands at 2,221. All three indexes are holding key support levels and we have mentioned all week that we expected the market to go up on Thursday and Friday.
Of course, it is an “educated guess” on our part but we know the bulls like to end January on a positive note because it often sets the tone for the entire year of trading. The theory goes that whatever the Dow does in January usually translates either a gain or a loss for the year.
We mentioned yesterday the bulls needed 200 points to get back to even on the year for the Dow and that movement started right after the Fed announcement.
Watch the Education stocks. Obama is pushing for a $10,000 college tax credit and a 20-year student debt relief program. We often mention Apollo Group (APOL, $64.15, up $2.27) in a negative light and our favorite way to play the stock is usually with put options. Shares touched a low of $53 in December after another investigation was planned and dropped and a lawsuit was settled.
We aren’t ready to play this one yet but there will be a trade down the road with this one again.
One stock that should see a HUGE open this morning is Netflix (NFLX, $50.97, up $1.02) which was up $9 in after-hours last night and was kissing $60. Folks, we love this company and should have known history might repeat itself.
Every weekend, we look for trades and find about 10 or 15 trades that look like possible candidates. Out of them, we try to find one or two trades a week that look like the best ones and when we were doing the Weekly Wrap we wrote down some Netflix put and call options. These quotes are from Friday’s close but here were our thoughts:
“Watch Netflix this week, stock has been in a downtrend but the company has its fingers in a lot of pies. They announce earnings Wednesday. February 55 calls (QNQBK, $1.40) and February 45 puts (QNQNI, $1.00).”
This is known as a strangle trade and they are easy to do. We don’t recommend these kinds of trades because most options traders can’t understand the concept. Basically it means you are hoping for a BIG price move in the stock so that one side offsets the other side. Yesterday in our 1pm update we said the market was pricing in a 10% move for the stock. Folks, we got a 20% move if it holds and here is what how this trade works.
If you would have bought 10 contracts of each position it would have cost $2,400. Or, if you would have bought just one contract of each option on Monday morning then it would have been $240.
Now, if Netflix opens at $60 the Feb 55 call options will be worth at least $5 because they are that much “in-the-money”. The Feb 45 put options will probably fall to a “bid” of zero with an “ask” of 5 cents. In other words worthless. However, if you can sell the calls for $5 then you have doubled your money. Your $2,400 is now at $5,000 or your $240 is now at $500.
Of course, there was risk in this trade but at this exact time last year we recommended some Netflix March call options that returned our readers 50% and 100%, respectively. We tried again in November because we really felt like the stock was going to $80. Then the downgrades came.
Wall Street is a game and we do a lot of research here. Out point is our trading manual is almost ready and we talk about straddles and strangles trades because they are not that hard to do. Given the current market conditions, we may have to start using them. Our website says, “nothing fancy, just simple calls and puts” but again, these trades are just like buying a call or put option only you are buying both.
If the demand is there, we will start offering these trades as part of our service at no extra charge. Please send a simple “yes” or “no” in the subject line if you would like us to cover more of these trades to our support team.
The Members Area is also packed full of information today so we want to get our current subscribers in there before the opening bell. As we head to press, the rally we have been counting on could come to fruition…Dow futures are up 26 while the S&P 500 futures are up 3. Nasdaq futures are lower by 3 points.
Tags: Netflix strangle option trade, option picks, option signals, options alerts, stock options trading
Posted in Company Commentary, Hot Stocks, Market Commentary, Trading Psychology, Trading Tips | Comments Off
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Working For The Weekend
Friday, January 29th, 2010
12:45pm (EST)
The bulls showed up today to try and take the market into positive territory for the month but they have a long way to go. We have talked about how Wall Street uses January as a barometer to gauge how the market might trade for 2010 so we knew we would probably go higher today.
The theory goes that if the Dow ends January higher there is usually a pretty good chance the market ends higher for the year. If the index is lower, the market ends the year with a loss.
Based on this theory we thought the bulls would show up yesterday as well because they needed a couple of hundred points to take the Dow into positive territory for the month. They lost 100 yesterday so we are about 300 points away…Currently, the Dow is at 10,145, up 25 points and would need to reach 10,428 for the bulls to pull this one off.
If the Dow does end the month for a loss, we don’t think it’s a slam dunk we end 2010 lower but the current market environment feels like we are going lower over the near-term despite today’s rally.
We wanted to do an update on Amazon.com (AMZN, $129.00, up $2.97) now that we can give you exact prices for the strangle trade we talked about yesterday. Here were our comments:
“The premiums are probably overpriced or super rich for Amazon.com (AMZN, $123.19, up $0.44) which is why we won’t play this one but the ideal place to try and do this trade would be at the $125 level.
The February 135 calls (QZNBG, $2.90, down $0.05) and the February 115 puts (QZNNC, $3.80, flat) would cost $6.70 or $670 for just one contract of each which is why we said the premiums are rich and we are NOT doing the trade.”
If we take the current prices for these options the calls are at $2.16, down $1.42 while the puts are at 90 cents, down $2.30. This is only $3+ in premium so you would be down 50%.
The strangle trade with Netflix (NFLX, $63.15, up $0.11) wasn’t priced as rich as Amazon’s and we used both of these trades to show the risks of not knowing what to look for. One trade would have returned 200% while the other was a loser.
We have received a tremendous amount of feedback from our subscribers wanting these types of trades so we will be offering them in the future at no additional charge. However, please remember these types of trades won’t be as frequent because we have to find the right candidates and we need movement of 10%. In other words, they are a little harder to find.
Special Announcement: We have told you about the new changes coming to the options market and it looks like it is right around the corner. New options tickers will take effect on February 12th and some financial sites are already using the updated 21-character symbols.
We will be talking about these changes in the Members Area THIS weekend as we also begin to implement the new ticker symbols.
One bit of good news…Berkshire Hathaway Class B (BRK/B, $77.44, up $3.69) continues its recent surge and our subscribers are enjoying some HUGE gains on the call options we recommended last Thursday. At current levels, the trade is up 200%. We have locked in profits on half but we think this stock easily runs to $100 sometime this year.
Tags: option picks, option signals, options alerts, stock options trading
Posted in Company Commentary, Market Analysis, Market Commentary, Option Trades, strangle option trades, Strategies | Comments Off