5:00pm (EST)
Quick note for our current subscribers…
We have updated our 2010 portfolio in the Members Area today.
We have received lots of emails over the last few days as many of you are nervous of a pending market correction. The Dow lost another 216 points on Friday to finish at 10,172 as the selling pressure continued into the closing bell.
The Dow reached a high 10,763 on Tuesday and the 600 point drop from the high has meant a 5% correction. Are we nervous? Not at all.
In fact a week ago we had this to say:
“We have mentioned our targets for the indexes and from our camp it looks like the market is nearing a top which makes it harder to trade. It’s possible we rally for a few more weeks but once we get to February we think there’s a chance of a 5%-10% pullback.” (END)
Well, we got the 5% decline and next week we may get the other 5% decline.
As we enjoy the weekend, Dow futures are down 187; S&P 500 futures are lower by 20 while the Nasdaq futures are off by 43. Folks, if these figures hold up then we could have a major sell-off on Monday.
We have protected our portfolio by going way out in our call options and we have a current put option open that could do very well if the market does continue lower.
A lot of investors get nervous when the markets tanks or starts to correct but we love it. We’re like a chameleon, we change colors. Folks, if the market is in correction mode then you can make just as much money on the downside as you can on the way up. We still expect some kind of bounce but that may not come until the bears are done pushing.
For instance, we talked about the weakness in Goldman Sachs (GS, $154.12, down $6.75) on Thursday and Friday it dropped another $3 from our 1pm update. Some options traders did well buying Goldman put options. The February 150 puts (GPYNJ, $4.59, up $2.44) jumped over 110% on Friday.
We show you this stuff because you can make just as much with put options as you can call options. So, if the market is going to tank, don’t be nervous. The opportunity the volatility is providing right now is incredible.
There will be a ton of action next week and we will be back Sunday night with a full review of what to expect in the Weekly Wrap. Also, don’t forget to check out our money management video if you haven’t seen it yet.
If you want to see some of the returns you can make in a down market, check out our 2008 portfolio which can be downloaded as a PDF file. For those of you who don’t follow the market, we had a major correction from the summer of 2008 through March 2009. The bull market has been intact since then but the bears are waking up…
Options Market Gets Facelift
Saturday, February 6th, 2010
11:00pm (EST) Special Update
We have been talking about the new option symbol changes that will take place starting next Friday, February 12th, and we wanted to get everyone prepared for the transition. As you know, current option symbols range from 3-to-5 characters but all options will become 8 to 21 symbols long once the conversion takes place.
The goal is to make options easier to decipher but all you really need to know to place a trade is the underlying stock, the expiration month you want, the strike price and whether it’s a call or a put. They will look more complex but most brokerage accounts have already upgraded their trading platforms so that you really don’t even need to remember the option symbols anyway.
We have already started incorporating the new style of options symbols for our latest trades and ideas and we will continue displaying the old or current symbols up until the change. Some financial sites have already made the switch but even if you see different symbols you can still place a trade as long as you know the option you want.
The one problem with current option quotes is that some stocks use their stock symbols as the first part of the option while others don’t. For instance, the option quotes for International Business Machines (IBM, $123.52, up $0.52) start with “IBM” while the options for Microsoft (MSFT, $28.02, up $0.18) start with “MSQ”.
We will look at these two stocks and their current options and show you the new change.
The IBM February 125 Calls (IBMBE, $1.16, up $0.04) currently look like this. The new option symbol becomes (IBM100220C00125000). NOTE: The “option root symbol” can be up to 6 characters long.
The Microsoft February 27 Puts (MSQNB, $0.24, down $0.10) will become (MSQ100220P00027000). NOTE: Until February 12th the option root will be the same as the previous. After the 12th, they should read (MSFT100220P00027000).
The stock’s underlying ticker symbol will always be used in the new symbol. MSQ will soon become MSFT. The days of “decoding” option root symbols are coming to a close. This wasn’t a big deal anyway but it does make things easier.
The second element, the expiration date, is always six numbers. In this case, “100220″ for both IBM and Microsoft represents February 20, 2010, the expiration date for February 2010 options. The first two numbers, “10″, represents 2010; the “02” for February; and “20” for the day. A 2011 option reads “11”, a December option would be “12”
The expiration date is always on the Saturday that follows the third Friday of the month, unless that Friday is a market holiday, in which case the expiration is on the Friday. This is a little confusing though as the last day to trade options for February is Friday, the 19th.
The third part is if the option is a call or put which is represented with a ”C” or “P”.
The last set of numbers represents the strike price, which consists of eight numbers. The first 5 denote the strike dollar price, and the remaining 3 represent the decimal (if any).
Thus, “00027000″ represents the Microsoft February 27 put strike. If it were a 27.50 strike, it would read “00027500.”
The new terminology will take some getting used to but again, as long as you know the stock, the month you are playing, the strike price and if it’s a call or put option you will be fine. If you have any questions, email us.
Tags: new option symbols, option picks, option signals, option symbol change, option symbol changes, options alerts, options expiration, stock option symbol changes, stock options trading
Posted in Market Commentary, Money Management, Option Trades, Sectors, Strategies | Comments Off