1:05pm (EST)
There has been a flurry of economic news this morning that has moved the market and the bears were able to push the major indexes lower at the open. However, the bulls got some “better-than-expected” news and have fought back to take a slight edge heading into second half of action.
Here were the numbers:
The Consumer Confidence index for August came in at 53.5 versus estimates for 50.5, Chicago PMI for August was 56.7 compared to expectations for 56.0 and S&P Case-Shiller for June was up 1%, month over month.
The other big event to watch for today will be the release of the FOMC minutes at 2pm (EST).
And now for the good stuff…
This morning we profiled a strangle option trade and little did we know we would be doing an update 4 hours later. We mentioned shares of Freeport-McMoRan (FCX, $72.54, up $2.18) are capable of big moves and we targeted a quick trade to show you how you can use them in volatile markets. The stock opened at $69.87 this morning and this is what the options have done:
The September 65 puts (FCX100918P00065000, $0.50, down $0.31) opened at 87 cents while the September 75 calls (FCX100918C00075000, $1.51, up $0.56) opened at 80 cents. Your total cost of the trade was $1.67 or $1,670 for 10 call options and 10 put options.
Shares of Freeport are only up 3% but as you can see, the call options are up 60% and have traded as high as $1.72. In other words, they more than doubled.
This was the PERFECT scenario as you could have quickly sold the calls at $1.60+ by setting a limit order to close the calls when they hit this price in your brokerage account or by our Trade Alerts if this had been an official trade. This would have put $1,600 back into your trading account in less than 4 hours.
Now, here is the beauty of this trade folks. You would still own the September 65 puts which are at 50 cents so you could close them right now and put another $500 into your account. This would give you a net of $2,100, or a 26% return…in 4 hours.
You could also roll the dice and play the puts for the rest of the week. You could also close half of the puts and let a little ride. They would do well if shares stalled and retreated back below $70 but we would pull a Steve Miller by taking the money and running.
We are going to start covering more of these trades in our Members Area but we aren’t going to go overboard. We may, from time-to-time, do a strangle option trade or straddle option trade because it is our job to make you money but a lot of investors have trouble understanding these trades or putting them on.
As we head to press, the Dow up 26 points to 10,035 while the S&P is up a couple of points to 1,050. The Nasdaq is down 3 points to 2,144.
There is a lot to cover in our Members Area today so let’s get on it. We will be back in the morning with another full update.
Tags: chicken trades, FCX, option picks, stock options trading, strangle option trades
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on Tuesday, August 31st, 2010 at 1:08 PM and is filed under Market Analysis, Market Commentary, strangle option trades.
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Market Slightly Higher At Halftime
1:05pm (EST)
There has been a flurry of economic news this morning that has moved the market and the bears were able to push the major indexes lower at the open. However, the bulls got some “better-than-expected” news and have fought back to take a slight edge heading into second half of action.
Here were the numbers:
The Consumer Confidence index for August came in at 53.5 versus estimates for 50.5, Chicago PMI for August was 56.7 compared to expectations for 56.0 and S&P Case-Shiller for June was up 1%, month over month.
The other big event to watch for today will be the release of the FOMC minutes at 2pm (EST).
And now for the good stuff…
This morning we profiled a strangle option trade and little did we know we would be doing an update 4 hours later. We mentioned shares of Freeport-McMoRan (FCX, $72.54, up $2.18) are capable of big moves and we targeted a quick trade to show you how you can use them in volatile markets. The stock opened at $69.87 this morning and this is what the options have done:
The September 65 puts (FCX100918P00065000, $0.50, down $0.31) opened at 87 cents while the September 75 calls (FCX100918C00075000, $1.51, up $0.56) opened at 80 cents. Your total cost of the trade was $1.67 or $1,670 for 10 call options and 10 put options.
Shares of Freeport are only up 3% but as you can see, the call options are up 60% and have traded as high as $1.72. In other words, they more than doubled.
This was the PERFECT scenario as you could have quickly sold the calls at $1.60+ by setting a limit order to close the calls when they hit this price in your brokerage account or by our Trade Alerts if this had been an official trade. This would have put $1,600 back into your trading account in less than 4 hours.
Now, here is the beauty of this trade folks. You would still own the September 65 puts which are at 50 cents so you could close them right now and put another $500 into your account. This would give you a net of $2,100, or a 26% return…in 4 hours.
You could also roll the dice and play the puts for the rest of the week. You could also close half of the puts and let a little ride. They would do well if shares stalled and retreated back below $70 but we would pull a Steve Miller by taking the money and running.
We are going to start covering more of these trades in our Members Area but we aren’t going to go overboard. We may, from time-to-time, do a strangle option trade or straddle option trade because it is our job to make you money but a lot of investors have trouble understanding these trades or putting them on.
As we head to press, the Dow up 26 points to 10,035 while the S&P is up a couple of points to 1,050. The Nasdaq is down 3 points to 2,144.
There is a lot to cover in our Members Area today so let’s get on it. We will be back in the morning with another full update.
Tags: chicken trades, FCX, option picks, stock options trading, strangle option trades
This entry was posted on Tuesday, August 31st, 2010 at 1:08 PM and is filed under Market Analysis, Market Commentary, strangle option trades. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.