9:00am (EST)
The bulls got back on track Wednesday as they rode the blue-chips’ 9-session win streak to regain some momentum following another choppy session. With yesterday’s pops, all of the major indexes are in the green for the week but we expect volatility to pick up starting with today’s session. The bank stress tests after the close and tomorrow’s quadruple expiration on options could cause a huge move past resistance, or a test to support that served as prior resistance.
The Dow added a nickel to close at 14,455 while the S&P 500 gained 2 points to finish at 1,554. The Nasdaq kicked a field goal to end at 3,245 and the Russell 2000 matched it by the close to settle at 943.90. Meanwhile, the S&P Volatility Index ($VIX, 11.83, down 0.44) fell nearly 4% and is back near 52-week lows.
We wanted to spend some time talking about “cheap” options this morning and why they can be worth a look during option expiration week. We consider options under $1 “cheap” because you can do a 10 contract trade on a 20 cent option for $200 that can make some incredible returns.
Take for instance, Netflix (NFLX, $192.36, up $10.25) which advanced 5% and kissed $195 yesterday. We are still a little upset we didn’t recommend call options before the big move back in late January from $97 to $150 after the company beat earnings expectations because we did our homework and knew they would. Shares continued higher into the first week of February and reached $188 before they faded a little. We told ourselves then shares would eventually make it to $200 but we didn’t believe there would be an option trade because the premiums have been juiced.
A subscriber had asked about Netflix over the weekend and we did look at the chart but we didn’t look at the options. We should have listed some on our Watch List but on Monday, shares were down $5 and had fallen below $180 at one point. With resistance at $190, we didn’t think shares would have the mustard to push $200 this week and we figured the March call options were jacked anyway. Wrong.
Granted, shares of Netflix surged on the news of its deal with Facebook (FB, $27.08, down $0.75) but we had no idea a sweet headline like this was coming. In any event, the Netflix March 195 calls (NFLX130316C00200000, $0.75, up $0.58) closed at 17 CENTS on Tuesday and opened at 51 cents on Wednesday. They traded to a high of $1.83.
We watched the move all day but day trading these options was still risky and we didn’t want to get in at the top. Shares traded above $194 for over an hour and started to fade off their highs late in the day which was the clue to take profits.
Of course, all of this is hindsight but there are ways to use Weekly options to speculate and why we are playing cheap options right now. We like to play more expensive options when there is a clearer trend in place and for now we are continuing to play alongside the bulls.
There are some stocks that trade WEEKLY options but the timing has to be right when you trade these types of high risk/ high reward trades. Directional trading is already risky enough and from time-time we dabble in WEEKLY options but remember they are the riskiest of the bunch.
Futures are showing a higher open this morning and look like this: Dow (+19); S&P 500 (+3); Nasdaq 100 (+7).
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on Thursday, March 14th, 2013 at 8:42 AM and is filed under Company Commentary.
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Netflix (NFLX) Pushes $200
9:00am (EST)
The bulls got back on track Wednesday as they rode the blue-chips’ 9-session win streak to regain some momentum following another choppy session. With yesterday’s pops, all of the major indexes are in the green for the week but we expect volatility to pick up starting with today’s session. The bank stress tests after the close and tomorrow’s quadruple expiration on options could cause a huge move past resistance, or a test to support that served as prior resistance.
The Dow added a nickel to close at 14,455 while the S&P 500 gained 2 points to finish at 1,554. The Nasdaq kicked a field goal to end at 3,245 and the Russell 2000 matched it by the close to settle at 943.90. Meanwhile, the S&P Volatility Index ($VIX, 11.83, down 0.44) fell nearly 4% and is back near 52-week lows.
We wanted to spend some time talking about “cheap” options this morning and why they can be worth a look during option expiration week. We consider options under $1 “cheap” because you can do a 10 contract trade on a 20 cent option for $200 that can make some incredible returns.
Take for instance, Netflix (NFLX, $192.36, up $10.25) which advanced 5% and kissed $195 yesterday. We are still a little upset we didn’t recommend call options before the big move back in late January from $97 to $150 after the company beat earnings expectations because we did our homework and knew they would. Shares continued higher into the first week of February and reached $188 before they faded a little. We told ourselves then shares would eventually make it to $200 but we didn’t believe there would be an option trade because the premiums have been juiced.
A subscriber had asked about Netflix over the weekend and we did look at the chart but we didn’t look at the options. We should have listed some on our Watch List but on Monday, shares were down $5 and had fallen below $180 at one point. With resistance at $190, we didn’t think shares would have the mustard to push $200 this week and we figured the March call options were jacked anyway. Wrong.
Granted, shares of Netflix surged on the news of its deal with Facebook (FB, $27.08, down $0.75) but we had no idea a sweet headline like this was coming. In any event, the Netflix March 195 calls (NFLX130316C00200000, $0.75, up $0.58) closed at 17 CENTS on Tuesday and opened at 51 cents on Wednesday. They traded to a high of $1.83.
We watched the move all day but day trading these options was still risky and we didn’t want to get in at the top. Shares traded above $194 for over an hour and started to fade off their highs late in the day which was the clue to take profits.
Of course, all of this is hindsight but there are ways to use Weekly options to speculate and why we are playing cheap options right now. We like to play more expensive options when there is a clearer trend in place and for now we are continuing to play alongside the bulls.
There are some stocks that trade WEEKLY options but the timing has to be right when you trade these types of high risk/ high reward trades. Directional trading is already risky enough and from time-time we dabble in WEEKLY options but remember they are the riskiest of the bunch.
Futures are showing a higher open this morning and look like this: Dow (+19); S&P 500 (+3); Nasdaq 100 (+7).
This entry was posted on Thursday, March 14th, 2013 at 8:42 AM and is filed under Company Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.