Paul Simon said it best when “you know the nearer your destination the more you’re slip slidin’ away”.
We normally crank out the office tunes on Friday to lighten the air and we try to start our morning by picking a song that best describes the market’s mood for the week. We are a day early as we continue to see sloppy-choppy action with the bulls still attempting one more push at new highs.
The morning pops have been met with afternoon drops but Wednesday’s close looked bullish on some fronts. However, today’s action has played out much the same way with the current drop being more powerful as the bears push weekly lows.
The bulls need to hold the next wave of support or there could be a moment this week when Wall Street flinches.
From the “We Blew it Department”…
We have recommended magicJack VocalTec (CALL, $20.60, up $3.07) trades in the past and it has usually been a great stock to trade around the company’s earnings announcements. Shares tend to make huge 10%-20% moves on the news and today is no different.
We listed the company this week in our Earnings section of the Weekly Wrap but failed to look at the options ahead of the announcement. We knew the company would be reporting after Wednesday’s close and there was a great opportunity to go long before the close and to cash out at this morning’s open.
The March option chains were a little riskier than the April calls and puts because they expire next week. The April premiums are a little more expensive but they offer more time for a trade to play out in case there is a pullback and a little less risk. However, an earnings miss or lowered guidance and a lower stock price can crush call options.
Near-term options can lose 80%-100% of their value if you are on the wrong side of the trade. The longer-term options usually take hits of 50%-75%.
There are additional ways to offset risks by using puts but like we said, we have always been pretty bullish on magicJack.
We like to play call options when the company reports their numbers as they tend to beat the suit-and-ties’ forecasts. Shares easily cleared $20 last night after they beat estimates by 13 cents a share. Revenue also came in above expectations and guidance was raised.
In other words, magicJack scored a hat trick as shares are zooming 17% and have reached a peak of $22.90.
The March 20 calls (CALL140322C00020000, $1.25, up $0.80) are currently up 178% after closing Wednesday at 45 cents. The options opened at $1.95 and traded to a high of $2.90 and represented a 544% return at the peak.
The April 20 calls (CALL140419C00020000, $2.05, up $1.20) are up 141% and could have been picked up for 85 cents ahead of Wednesday’s close. These calls opened at $2.46 and have traded to a high of $3.40. This would have been a 300% return if cashed out at the top.
Obviously, we aren’t chasing at the stock or options at these levels as there will likely be some slippage from here but remember this in another 3 months when the company updates Wall Street again.
The bears are growling as we make the turn. The Dow is down 200 points to 16,149 while the S&P 500 is lower by 21 points to 1,847. The Nasdaq is declining 67 points to 4,255 and the Russell 2000 is off 12 points to 1,178. The S&P 500 Volatility Index ($VIX, 15.54, up 1.07) is up 7% and back above 15. Remember, we don’t flinch until 17.50 triggers.
Subscribers, hit the Members Area for the updates and stay locked-and-loaded into the close as we could have a New Trade coming.
Friday’s have been bullish in recent weeks, especially in Tech, so today and tomorrow’s close will be important clues on how next week plays out. The bears are right at the second waves of support and the bulls will need to hold.
Tags: daily option picks, day trading weekly options, option picking service, selling climax, support and resistance trading, trading support and resistance, weekly options windfall, weekly stock options