9:00am (EST)
We don’t need no education
We don’t need no thought control
No dark sarcasm in the classroom
Wall Street leave them bulls alone
There is no intro needed for this Friday’s office jam as we get ready for the opening bell…
The bulls continued their march higher on Thursday as they pushed past resistance while holding support on Tech. The bears tried to catch a little of the action but economic news helped offset some of the weakness as jobless claims came in much better-than-expected. The bulls gave a little bit back as the S&P finished flat but we are betting they have one more stampeded in them before the bears take over.
The Dow added 46 points, or 0.3%, to close at 13,825. The blue-chips were up triple-digits at one point, trading to a high of 13,879, and held resistance at 13,800 into the close. It would be hard to imagine the bulls not triggering 14,000 or new highs for the Dow as they have come so far so fast. However, we often remind readers that stocks (or the market) often take the stairs higher and the elevator down at some point.
The S&P 500 showed a heartbeat and ended the day up 1/100 of a point to close at 1,494.82. The index cleared 1,500 in the morning hours and kissed 1,502 before ending flat. The bulls will try to clear and hold this level ahead of the weekend. Support is way back at 1,275.
The Nasdaq held up well despite Apple’s (AAPL, $450.50, down $63.51) regression, falling 23 points, to settle at 3,130. The bulls were able to hold 3,125 after Tech touched a low of 3,124.45 but 3,100 is now in play on a further pullback. A close back above 3,150 today would be a bullish sign for next week.
The Russell 2000 gained 3.5 points, or 0.4%, to end right on 900. The small-caps reached a peak of 904 and could run another 3% before the bears wake up. We have been calling for a test to 900-925 on an overshoot which could be reached within the next week or two if the bulls keep their current momentum.
The S&P Volatility Index ($VIX, 12.69, up 0.23) hit 13.50 after the open but stayed well below 15 which is our warning sign.
Starbucks (SBUX, $54.57, up $0.11) should get a nice pop at the open after reporting a sweet quarter. We were thisclose to recommending the February 57.50 calls (SBUX130216C0005750, $0.77, up $0.27) yesterday but we didn’t like the price action shares were showing as we wanted to see a push past $55 ahead of the news. Shares traded to a high of $54.90 yesterday and will likely clear this level at the open.
Although we didn’t swing the bat this week on an earnings play, we will next week as we have room for a few more trades. We are off to a 9-0 start (including the Weekly Wrap) for 2013 but we want to be careful as we approach a possible top in the market.
Futures are showing a decent start to today’s session and look like so: Dow (+31); S&P 500 (+4); Nasdaq (+10).
Subscribers, check the Members Area for the updates.
Special Note: For those of you unfamiliar with our Watch List, it is a section in the newsletter on possible option trades we are looking at. Some of them become “official” trades we take, some don’t.
One stock that has been hot over the past 2 weeks is Aetna (AET, $49.72, up $1.11) and we profiled the February 48 calls (AET130216C00048000, $2.30, up $0.80)last Monday at 50 cents. If you happen to be in this trade, it would be wise to start booking at least half profits as the trade is up a whopping 360%. We have added 2 new candidates this morning and although we likely won’t initiate new positions today, we might if the price is right.
Again, we DON’T take credit (or blame) for a trade unless we send out a New Trade Alert but we get tons of emails from time to time when an option we profile on our Watch List breaks out to these kinds of gains so we thought we would address all of the happy emails we are getting.
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Netflix (NFLX) Options Zoom 4,000%/ S&P Trips 1,500/ Profit Alert (CHRW)
Thursday, January 24th, 2013
12:25pm (EST)
We mentioned this week would produce some nice earnings trades and one we failed to capitalize on was Netflix (NFLX, $142.82, up $39.56) which is up a whopping 38% today. The company did the exact opposite of Wall Street expected as they reported a profit of 13 cents versus expectations for a loss of 13 pennies.
We had a feeling the company would “survive” considering the deal they recently signed with Disney (DIS, $54.60, up $0.65) which was huge. Netflix has a solid brand name and despite some stumbles, there is some value in the shares.
As cable companies continue to raise prices and provide crummy service, customers are looking for ways to reduce their cable bill or slash them entirely. Verizon (VZ, $42.83, up $0.04) charges an incredible amount of money to use their cable, phone (home and mobile), and internet services. There are so many hidden fees attached to your cable bill that it becomes a headache to figure it out. They charge monthly fees for the cable boxes and they don’t offer the best phone rates as many carriers are a lot cheaper. Customers are paying north of 4 bills to have all of Verizon’s bells and whistles with a phone and data plan.
This is where Netflix comes in. As people move away from traditional cable companies and switch to alternative methods, content will be key as well as pricing. Netflix is $8 or $16 a month an offers a ton of viewing choices. The company is expanding globally but now managing that growth in a better way and their partnerships continue to impress. Shares are still a little lofty at these levels but with so many downgrades and lowered expectations, we should have swung the bat on a cheap call option trade.
The Netflix February 130 calls (NFLX130216C00130000, $14.55, up $13.60) closed at 95 cents yesterday after OPENING at 34 cents and are up a whopping 1,431% today. In other words, a $1,000 investment would be worth a cool $14,550 at the present moment.
There are WEEKLY options available to trade on Netflix and the January 125 calls (NFLX130125C00125000, $16.40, up $16.02) closed at 38 cents yesterday after opening at 16 cents and are up an astounding 4,215% on today’s news. A $380 trade on 10 contracts would have yielded a profit for $16,400!
Now you know why we say earnings season can produce some incredible option returns.
As far as the market, the bulls are flexing their muscles despite Apple’s (AAPL, $460.32, down $53.69) drubbing. The Dow is surging 85 points to 13,862 while the S&P 500 is up a nickel to 1,500. The Nasdaq is down a six-pack to 3,147. Incredible.
We do have more good news for a few of our current trades and we are locking in profits on one that showing a gain of nearly 60%. We said the bulls could run through the first of February and we are looking to ring the register along the way.
Subscribers, check the Members Area for the updates.
Special Reminder: We were stopped out of our Antares Pharma $4.00, flat) covered call trade for the Weekly Wrap. We made single-digits on the trade and we could have written another call option to get the returns to double-digits but we felt it was best to move our money into some faster moving trades. This gets out Track Record for the Weekly Wrap to 46-2 since inception. We will have a special story for you tomorrow on the Weekly Wrap so make sure you read up on it.
Posted in Covered Calls, Hot Stocks, Market Analysis, Market Commentary, Option Trades, Stock Earnings, Strategies | Comments Off