Tuesday, July 22nd, 2014
MomentumOptionsTrading.com Midday Update for 7/22/2014
S&P Triggers Fresh High/ Chipotle (CMG) Surges $77/ 2 New Trades!!!
The bulls are continuing their rebound off Monday’s lows as they have managed to clear resistance and push fresh highs. Earnings have been mixed with some of the blue-chips taking a hit and Apple (AAPL, $94.32, up $0.38) is on deck after after today’s close.
One stock surging on a blowout quarter is Chipotle Mexican Grill (CMG, $667.25, up $77.32). Customers easily brushed off higher prices and anted up as the company earned $3.50 a share, on revenue of $1.05 billion. The suit-and-ries were looking for $3.09 a share on sales of $990 million. Wow.
I mentioned yesterday shares could move 8%-10% and today’s 13% move has been a windfall for option traders that went long.
I profiled the August 640 calls (CMG140816C00640000, $31.90, up $21.10) at $7.45 in Monday’s midday update and they have zoomed over 300%.
I also provided some insurance with the August 520 puts (CMG140816P00520000, $0.25, down $5.25) which were at $5.70. Needless to say, these options were crushed on the better-than-expected results they are down 95%.
The cost to do this strangle option trade would have been $13-$14 or $1,300-$1,400 for one call and one put option. At current levels, the position would be valued at $32.15, or $3,215. This would equate to a return of 130%-150%.
For the high rollers that have emailed me this morning, yes, cash out the position. I mentioned a triple-digit return would occur if shares surged above $670 and the parameters of the trade have been met.
As far as the market, the Dow is gaining 64 points to 17,116 and the S&P 500 is higher by 11 points to 1,985. The Nasdaq is higher by 32 points to 4,460 while the Russell 2000 is up 13 points to 1,160.
Subscribers, check the Members Area for the New Trades and current updates.
Tuesday, July 22nd, 2014
MomentumOptionsTrading.com Morning Update for 7/22/2014
Bears Growl, Bulls Hold Support
The bulls started Monday’s session behind the 8-ball following an opening attack by the bears but limited the damage by the close after holding support. The mini-trading range that has developed over the past 2 weeks has seen both sides struggle with support and resistance. This has frustrated Wall Street but bigger moves and a possible new trend are on the verge of developing. (read more…)
The Dow fell 48 points, or 0.3%, to close at 17,051. The blue-chips traded to a low of 16,974 on the open before recovering the 17,000 level by lunch. The rebound to 17,095 late in the day came within 5 points of breakeven and keeps 17,200-17,300 in play. A close below 16,900-16,800 would be bearish.
The S&P 500 slipped 4 points, or 0.2%, to settle at 1,973. The bears pushed 1,965 shortly after the opening bell before the bulls recovered to reach 1,976. The 1,975-1,970 level held with backup support at 1,960-1,950. A close above 1,980-1,985 would be bullish for a run at 2,000.
The Nasdaq dropped 7 points, or 0.2%, to end at 4,424. Tech tested 4,404 at the start of trading and held 4,400 before pushing positive territory by a third of a point shortly after yesterday’s midday update. The close below 4,425 was slightly bearish and 4,450 has been a brick wall.
The Russell 2000 declined 5 points, or 0.4%, to finish at 1,146. The small-caps kissed 1,140 but held this level while finishing below 1,150. This was both bullish and bearish as a close below 1,140 would not be good news. A recovery of 1,150, and more importantly 1,160, would be a good sign higher highs are in store.
The S&P 500 Volatility Index ($VIX, 12.81, up 0.75) jumped 6% and closed above 12.50 after reaching a peak of 13.62. The bulls held 13.50 but the bears cleared 12.50 again. The breakout or breakdown points for the market are closes below 11.50 or above 15. Until then, a volatile trading range will likely continue.
Futures are showing a higher open heading from desk to press: Dow (+21); S&P 500 (+3); Nasdaq 100 (+6).
Monday, July 21st, 2014
MomentumOptionsTrading.com Midday Update for 7/21/2014
Chipotle Mexican Grill (CMG) on Deck
I have recommended bullish positions on Chipotle Mexican Grill (CMG, $585.21, down $7.21) in the past when shares were under $100 and in the low triple-digits but it has been a few years since I have played the options due to their expensive premiums.
McDonalds (MCD, $98.12, down $0.87) had been a major investor in the company but cashed out their position when the company went public in 2006. Probably not their best decision as Chipotle has easily overtaken the burger chain in popularity.
Earnings are due out after the close and there is a good chance Chipotle shares move $55-$60, or 8%-10%, in extended trading.
The company missed estimates by 22 cents last time out with a prior match and miss by 12 cents over the past 3 quarters. If the company doesn’t come in with a beat and raise this time around shares could get pounded.
Shares fell $23 in April from $552 to $519 but tested $472 six sessions later after earnings were announced. In January, CMG jumped from $493 up to $551 on the earnings match the following trading session. In October 2013, shares zoomed from $439 to $509, or 70 points after earnings.
The August 640 calls (CMG140816C00640000, $7.45, down $0.90) and the August 520 puts (CMG140816P00520000, $5.70, up $1.15) could be used as a strangle option trade to play the possible move but they are expensive. Also, if shares fail to make a huge pop and move less than $30, these premiums will get whacked.
The cost to do this strangle option trade would be $13-$14 or $1,300-$1,400 for one call and one put option. If shares move $60-$70, the stock would be at $645-$655 or $525-$515. The break-even points for the strangle option trade would be $653 or $507, technically, by mid-August.
There is a chance to possibly make a double-digit return with these options. These are August options so there is some time to wait for a possible 10% stock move from current levels but the risk/ reward just isn’t there for me to make this trade an official recommendation.
A triple-digit return would occur if shares surge above $670 or tank below $500 by mid-August.
As far as the market, futures were showing a weaker open throughout the night and leading into the opening bell and that is how the action has played out to start the week.
The Dow is down 73 points to 17,026 while the S&P 500 is lower by 8 points to 1,970. The Nasdaq is declining 16 points to 4,416 and the Russell 2000 is off 8 points to 1,143. The VIX is at 13.02, up 0.96, or 8%.
Subscribers, check the Members Area for the updates. I could have a Weekly Wrap update later this afternoon, or tomorrow, and a possible New Trade for the Daily. Stay locked-and-loaded into the close in case I take action.
Monday, July 21st, 2014
MomentumOptionsTrading.com Morning Update for 7/21/14
Get Ready for a Wild Week
The market rebounded on Friday following Thursday’s steep pullback to end the week on a positive note. The gains were enough to give the bulls the weekly win but the small-caps struggled as volatility has been elevated given the geopolitical events from around the world.
This week promises to be just as exciting with the opening of the flood gates for 2Q earnings. There are a number of heavy-hitters reporting and I have talked about the possibility of a new trend forming in the back end of July and into August.
While the bears made some noise, it remains to be seen if their clues were a buying opportunity or the real deal of more serious things to come. (read more…)
Friday, July 18th, 2014
MomentumOptionsTrading.com Midday Update for 7/18/2014
Bulls Rebound/ VIX Drops
The bulls are trying to extended their Friday win streak to 9-straight following yesterday’s pullback. If you include the Thursday ahead of the July 4 holiday, it would be 10-straight to end the week if the bulls hold their gains into the close.
Needless to say, it has been a volatile week but if the current gains do hold, the bulls will get the weekly win by taking three of the four major indexes. The exception being the small-caps.
Earnings will continue to gain traction along with geopolitical events and weekend news could weigh on Monday’s open, good or bad.
The Dow is up 98 points to 17,075 and the S&P 500 is gaining 16 points to 1,974. The Nasdaq is higher by 55 points to 4,418 while the Russell 2000 is advancing 17 points to 1,150. The VIX is at 12.05, down 2.49, or 17%.
Next week promises to be just as exciting and I can’t wait to do the weekend homework and chart work to see where the action could be headed.
There are a few last minute updates I have for you ahead of the weekend and I will be watching the close for important clues on how next week shakes out. While I don’t like opening new positions on Friday’s, there could be an exception as the current volatility is creating some incredible strangle option trades.
If you don’t hear from me ahead of the closing bell, I will be back Sunday night with the Weekly Wrap and on Monday morning with the Daily. Until then, have a great weekend everyone!
| || |