1. Commentary
2. Oil Surges in May
3. General Motors Put Options
4. Earnings
5. Current Trades
6. Monday Morning Playbook
7. Closing Thoughts
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1. Commentary
Another week, another win for the bulls. Although we have been stuck in a trading range, the bulls carried the market higher once again despite the looming threat of a General Motors (GM, $0.75, down $0.37) bankruptcy. That was the hot topic on Friday and the last-hour rally we got was a surprise.
GM was in and out of the woods all week after agreeing to a restructuring deal on Tuesday with the United Autoworkers then backing out by Wednesday. How heavily was the stock traded? Nearly 1 billion shares traded last week. The average daily volume in four days was 250 million shares traded. Day traders are having a field day on the novice investors buying the stock in hopes of a recovery or who don’t know what they are doing.
The company is expected to announce a Chapter 11 bankruptcy on Monday. Sad. Another American icon has now joined the list of companies that have gone bankrupt, sold out, or hit the skids.
Other than that, the market has done a great job of deflecting bad news and turning trash into cash. While some stocks deserve to be rallying, others don’t, but that is what makes a market. The fact that the bulls have kept a strangle hold on the bears for three months has been amazing. Trading ranges can be tough on option traders but I would imagine the bears are either going to “tap out” or get up and fight pretty soon.
The bulls relentless pressure pushed the Dow back to 8,500 which was a 223 pop, or 2.7% gain for the week. The Nasdaq soared nearly 5% as it added 82 points to finish at 1,774. The S&P closed at 919, up 32 points, or 3.6%, while the Russell 2000 added 24 points, or 5%, and ended up at 501.
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2. Oil Surges in May
Oil traded above $66 a barrel on Friday and hit a fresh five-month high, after jumping nearly 30% this month. It was the largest monthly rise in 10 years and oil has now nearly doubled since the March lows of $35 a barrel.
The surge should continue as the U.S. reported lower inventories and OPEC agreeing to leave production levels unchanged. Oil supplies fell an unexpected 5.5 million barrels last week, marking the third straight week supplies have ticked lower. The talking heads will spin this a million ways but the bottom line is inventories remain near 20 year highs.
Oil closed at $66.31/ barrel and looks to be headed to $70 to $75. My guess is that we see it sooner rather than later. Oil, iron, and copper have been hot and there have been some opportunities in the sector if you have been long.
One of the last trades I profiled before launching our new trading service was a trade in Freeport McMoRan (FCX, $54.43, up $2.23). I just wanted to provide some thoughts on the stock as a courtesy to those who have been emailing me since I profiled it on May 20th.
At the time the stock was at $50 and the June 55 calls (FCXFK, $2.78, up $0.89) were going for $2.10 and hit a high of $2.92 on Friday. The June 60 calls (FCXFL, $1.05, up $0.35) were going for 80 cents and traded as high as $1.17. I had also mentioned that you could have gotten better entry prices, and you could have when Freeport dipped to $46 a week later.
The chart below will show the “channeling” pattern the stock made from March 19th thru April 28, then a breakout. The same pattern formed over the next three weeks. These are one of the things you want to look for when planning an option trade. Now, if Freeport would have broken the other way, you would have bought puts.
If you don’t see a chart, go here:
The point I’m making is to always check the chart before doing an option trade to see where things stand. It now looks like Freeport is in a “breakout” and people seem to forget this has been a $125 stock within the last year. However, stops should already be in place in case of a reversal.
I also profiled the July 60 calls (FCXGL, $2.47, up $0.64) which were going for $1.85 on May 20th. They could do really well if Freeport continues its surge.
This is the last trade I will update before we roll out the new trading service, which should be this week, so make sure you set stops and pick your exit targets according to what your goals are.
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3. General Motors Put Options
I’m not trying to beat a dead horse but I fielded a slew of emails on people that own GM stock or were holding call and put options. I did mention the June 1 puts (GMVR, $0.60, up $0.06) on Friday as they were just about to hit 100,000 contracts traded. They ended up trading another 20,000 contracts and closed a penny from where they were profiled.
I only mentioned them because I was getting emails on people asking if GM was a good buy below $1. I can’t really answers those questions because you have to decide what your own risks are but stocks under $5 are under $5 for a reason. Yes, there are some solid companies trading for $3 and $4 but they aren’t in the same shape as GM. I have said it before and I’ll say it again. GM was worried about lining its pockets instead of looking into the future. They failed to adapt and change and got left behind.
Having said that, I wanted to go through your “options” if you are holding the stock or options. We get a lot of new readers weekly so I wanted to mention this when the GM news hits the Street on Monday.
If you own the stock, it should still trade but on a different exchange. It will get “de-listed” from the Dow and will trade on the OTC (over-the-counter) board. This is where all of the “penny” stocks trade. The key here is that the shares should still trade along with the options. The stock might get halted or suspended but this is not a long process and would only last a day or two, if that.
The delivery and settlement of every stock option is guaranteed by the OCC (Options Clearing Corporation) and whoever sold you the right to sell shares of GM at $1 is obliged to fulfill that obligation, so your profit is guaranteed. You can either sell those put options for a profit or “exercise” the options. This is the easiest method. They are June options and they still have three weeks before they expire.
If you exercise the options you would have to buy 100 shares for every contract you own. Let’s say GM is at 5 cents after it reopens for trading. You would then buy the shares and sell the stock for the same profit.
The June 1 puts should be at 90-95 cents if GM is at a nickel which is a 50% profit. If you buy the shares at 5 cents and you paid 60 cents for the put then your cost basis is 65 cents. If you sell the stock or “put” the stock to someone at $1, your return would also be about 50%.
Since it is the company that is going bankrupt and insolvent and not the person or institution who sold you those put options, you are guaranteed your profit and delivery. If you own the call options they will probably expire worthless. Of course, all of this is based on GM claiming bankruptcy and trading down to 5 cents so we shall see.
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4. Earnings
Monday: Altera (ALTR, $17.02, up $0.24), Apollo Investment (AINV, $5.51, down $0.11), Enersys (ENS, $16.20, down $0.02) and Lions Gate Entertainment (LGF, $6.20, up $0.60).
Tuesday: Applied Signal Technology (APSG, $20.93, up $0.53), Bob Evans Farms (BOBE, $25.80, up $0.60), Daktronics (DAKT, $8.57, up $0.13), Financial Federal (FIF, $24.79, up $0.65), Hovnanian Enterprises (HOV, $2.68, down $0.01), Layne Christensen (LAYN, $21.38, up $0.57) and United Natural Foods (UNFI, $22.73, up $0.38).
Wednesday: Collective Brands (PSS, $14.76, up $0.41), Dynamex (DDMX, $15.52, down $1.34), Greif Brothers (GEF, $48.32, up $1.26), Joy Global (JOYG, $34.47, up $1.38), Martek Biosciences (MATK, $21.19, up $0.46), Toll Brothers (TOL, $18.58, up $1.14) and Williams-Sonoma (WSM, $12.94, up $0.41).
Thursday: Analogic (ALOG, $36.49, up $0.04), Bio-Reference Laboratories (BRLI, $27.21, up $0.32), Krispy Kreme Doughnut (KKD, $3.47, up $0.14), Teekay (TK, $16.04, up $1.04) and Vail Resorts (MTN, $27.49, up $0.32).
Friday: American Woodmark (AMWD, $19.21, down $0.35), Exide Technologies (XIDE, $6.12, unch.) and Oil-Dri (ODC, $16.40, down $0.03).
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5. Current Trades & Closed Trades
We are set to roll out the new trading service I have been mentioning. The new service will offer both non-directional trading and directional trading. The two most important things to remember with the service is that the non-directional trades are very safe and offer returns of 4%-8% a month. That may not sound like much but when compounded over a year you are looking at 50%+ returns. Ryan will be profiling these trades.
I will offer the directional trades that are very high risk/ high reward. My goal is 100% return on trades while limiting losses to 50%. The track record that will be shown is from the blog only. I have listed every option trade since May 2008 and there are over 250 trades that have been profiled. The dates are listed so you can verify the blog and the entry prices for each trade. I list all of the winners and all of the losers that had my recommendation. The track record is over 70%.
I do not make every trade but I do make some of the trades I write about. If I do get in a trade, I will provide full disclosure. I will be profiling 1 or 2 trades per week but realize that depending on market conditions it could be more or less.
The new service will also include unlimited email and phone support. We will also be offering LIVE training classes four hours a week at different times to answer questions and go thru current options trades in detail. We also have prepared lectures for you to learn and listen from.
The currently enrolled students that have paid for our mentoring program course will get the trades for FREE as part of their lifetime membership. For those of you who have never traded options or who are new to options, this service will greatly enhance your option trading.
The price alone will literally save you thousands and thousands of dollars over the lifetime of your trading career. You will learn how to get the best options prices and where to find the best trades.
You will also get weekly commentary on the market’s activity and a slew of ideas for your trading goals. Ryan will be doing most of the classroom training at first as I will be concentrating on the blog and helping you with your questions.
I will be available to explain basic call and put options to you as well as help you open a trading account. If you don’t have a trading or brokerage account, I can get you set up to where you will have one. I can also help you identify where a stock will need to be if you are thinking of buying a call or put option and the profit and loss targets.
If you want to trade options, quit thinking about it and do it. The first step is opening an account and you can do that without putting money in. I can show you how to open an account and help you with your paperwork, step-by-step.
I will also be directing some of you to certain videos to watch and eventually I may do a class or two. The new service is aimed at making you a better options trader.
The cost of the new service will be $97 a month which is extremely cheap. In fact, one good trade will pay for the monthly membership itself. But the real value is what you will be learning. You will earn while you learn a host of option strategies as well as simple chart reading.
Now think about that for a minute. Let’s say you are thinking of buying a put option on Google (GOOG, $417.23, up $6.83) because you think the stock is headed for a major correction. Or a call option because you think it might test $500. However, what if you don’t know which option to buy but you want to know what needs to happen in order for you to make or lose money. In other words, we can help you analyze a trade before actually doing the trade. Then you know what you are facing. This alone is worth the monthly membership fee.
We think this new service will give you the edge to take your trading to the next level and remember you will have full access to our members-only area. We are certain once you join us, you will find this program one of the most comprehensive option courses on the Internet. Throw in the trading service and you can see why our slots will be filling up fast once we announce the new website.
That is all I have for now so tell me what you think. Again, I updated the last few trades from the blog and those will be the last ones mentioned. For those of you that do not join right away, please keep reading the blog. I will keep you updated on the trades after the fact but I’m still going to be covering a lot of stocks and the market in general.
The Weekly Wrap has also been a free service and I hope you have enjoyed receiving the newsletter for the first part of 2009. The Weekly Wrap will now be included in the monthly subscription but I will still send something out from time to time to keep you afloat on the current market.
Thanks to all of you who have emailed me and I have kept a list. For those of you on the list, I will be writing you personally with an extended invitation to join me at a slightly better rate for a 3-month or 6-month one time offer. For those of you reading this for the first time, please email me if you are interested in the discount rate as well. I want to be fair to everyone but I also wanted to give my regulars readers the first chance of signing up in case we cap the number of subscribers.
You can read the blog and all of the archives by going to:
Blog.OptionsMentoring.com
My email is Rick@OptionsMentoring.com. Please put “3 or 6 months” in the subject box.
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6. Monday Morning Playbook
This is where I normally profile a number of trades and pick the best ones. This trend will continue in the new service.
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7. Closing Thoughts
May turned out to be an outstanding month for the market as the closely watched S&P 500 rallied 5.3%. It was the third month of gains and it has been a rally I’ve been calling for since March. I always get asked where I think the market is headed but I really can’t answer that. No one knows where the market will be at on Wednesday, next week or next month. I follow trends and I have been telling you for the last few months the trend has been bullish.
Until we get a major break of support, meaning the Dow would have to fall below 7,700 , the S&P would need to fall below 800 and the Nasdaq would have to break back below 1,400 before I turn bearish, I’m going with the trend.
The 3-month rally has been impressive and the bulls are now looking at taking the S&P 500 to 1,000. That is a tall order but we have seen how the market shot too far to the downside. Maybe the rebound has more gas in the tank than Wall Street knows. Then again, the needle is reading empty and eventually the bulls will run out of gas. Until then, they are gonna keep coasting.
Economic news will be heavy this week so watch for the numbers for personal income and spending for April on Monday. We will also get a report on construction spending. Home and Car sales are due out Tuesday.
The Commerce Department will release April factory orders on Wednesday and Retailers will report May sales on Thursday.
The unemployment report at the end of the week is the one everyone will be watching. This will be key to any sustained rally. Rising unemployment can hurt consumer spending, which accounts for more than two-thirds of U.S. economic activity and gas is getting more expensive.
Watch for Bernanke’s testimony on Wednesday at 10am (EST) and sometime on Thursday.
We hope you have enjoyed the free option picks that were provided in the blog for over a year. Our purpose has been to show you how to consistently “win with options” and we look forward to you joining our new service. We really feel it is one of the best value offers that you will ever find when it comes to options training. Don’t forget to send me an email if you are interested in the longer-term subscription at a discounted price.
Good luck with your options trading and we look forward to working with you real soon!
Rick Rouse
Rick@OptionsMentoring.com
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MomentumOptionsTrading.com Weekly Wrap for 12/06/09
Sunday, December 6th, 2009
10:40pm (EST)
The bulls were off and running on Friday as the Dow opened with a triple-digit gain after Wall Street learned the unemployment rate fell to 10% in November from 10.2% in October before the bell. Most of the suit and ties figured the jobless rate would remain at 10.2% but a positive nonfarm payrolls report offered clues on Thursday.
The market also got a better than expected factory orders report 30 minutes after the open but before lunch the bulls were packing it up and heading out for the weekend. The markets then fluctuated the rest of the day on the strengthening U.S. dollar but still managed to finish the day and week higher.
The Dow was up 22 points to 10,388 and finished the week with a slight 0.8% increase. Not bad for five days worth of work but the Nasdaq carried the load as it settled at 2,194, up 21 for the day, and 2.6% for the week. The S&P 500 gained 6 to 1,105 and added 1.3%, respectively.
As you can imagine, some stocks rallied off the “good” unemployment report. Manpower (MAN, $56.77, up $5.39) soared 10% and hit a high of $58, Monster Worldwide (MWW, $16.83, up $1.80) popped 12% and Robert Half International (RHI, $25.74, up $2.56) jumped 11%.
Big Lots (BIG, $28.08, up $4.54) had a BIG Friday as shares zoomed nearly 20% after the national closeout retailer announced 3Q profits that more than doubled Wall Street’s expectations. The company earned $30 million, or $0.37 a share, compared with $12 million, or $0.15 a share, a year earlier. Wow. We were eyeballing this one in the Weekly Wrap last Sunday as an “earnings play” but felt nervous on recommending this one after our Aeropostale (ARO, $28.95, flat) debacle.
We should have stuck with our game plan as the Big Lots December 25 calls (BIGLE, $3.10, up $2.50) gained over 400% on Friday. Want one better? The BIG December 27.50 calls (BIGLY, $1.10, up $1.00) were up an astounding 1,000%! Now you know why we like earnings trades…
Elsewhere, Bank of America (BAC, $16.28, up $0.52) added 3% after it announced plans to repay $45 billion in TARP funds as it looks to find a new CEO. Hard to believe this stock was at $3 in March. We made some great option trades on the stock’s climb back to $20 which is where it ran out of gas back in October. We aren’t ready to jump back into this one but we are watching the developments.
Gold has a wild week and hit a record high of $1226 per ounce, but ended the week at $1161/ oz. after plunging $52 on Friday. We were preaching that the gold bugs were getting ahead of themselves last Wednesday when we heard “Gold $5,000″.
We don’t think the rally in gold is over but it only took two days after that retarded call for gold stocks to plunge. Barrick Gold (ABX, $42.68, down $4.16) fell 9%, Newmont Mining (NEM, $52.05, down $2.43) dropped nearly 5% and Goldcorp (GG, $42.27, down $2.88) sank 6%. Also, Freeport-McMoRan (FCX, $79.87, down $3.93), a play on copper and gold, slipped 4.7%.
Crude oil closed down $1 to $75 while natural gas gained 13 cents to $4.59.
We will be back in the morning with the companies reporting earnings this week and the current trade updates.
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