8:55am (EST)
Well, time to open up the playbook.
It may be preseason in the NFL but in option trading we are in the game every day. I’ve been pretty limited with our playbook because I have been feeding you a lot of information lately on how to use options but I’m excited.
We all know I have been putting in tight stops on some plays and loose stops on other trades. The reason I do that is beacuse I want each and every single one of you to make a ton of money. I get emails daily and as you would imagine most are good and some are bad. That is the nature of the game when you run a trading service and I know that.
The most important thing I want you to know is that if you are beginner option trader, don’t jump into this whole option trading thing blindfolded. Take some of the trades and follow them on paper. When my trading manual is ready, you will see how everything works in a better picture. And realize some of the trades I do are based how I manage money. All right, enough rambling…
I am looking at Citigroup (C, $5.05, up $0.42) once again and here is the deal. If you made 114% and 80% like you should have on the Citigroup trade then why not take that money and double down? The break above $5 was huge yesterday and that changes the ballgame because the stock becomes “marginable” again.
Buying on margin is like a double-edged sword. Margin buying is when you buy a stock with cash borrowed from your brokerage account using other stocks as collateral. By doing this, it will have a huge effect on any profit or loss you may have.
I have profiled the Citigroup January 7.50 calls (CAQ, $0.29, up $0.09) and the January (2011) 10 calls (VRNAB, $0.58, up $0.15) and they are a BUY today. We are going to do a “layered’ trade on Citigroup and here is what it will cost.
I always buy 10 contracts or more of an option and I’ve explained this because of brokerage fees. I usually do 20 lot trades and “half’ trades are normally 10 option contracts and sometimes even 5 contracts if the options are expensive.
If you buy 30 contracts of the January 7.50’s it’s gonna cost you $700. If you buy 20 of the 2011 January 10’s it’s gonna run you about $1,200. That is $2,000 in a layered Citigroup trade at current prices and that is usually how I manage each trade in my trading account. Sometimes when I say “do a half position” that means buying only 10 or even 5 contracts which means I’m only putting up $500 or $1,000. I have stuck to this plan for years and I never go outside of this comfort zone no matter how much I like a position. It is consistant with my overall trading strategies and it is what has kept my trading account growing year in and year out.
Back to Citigroup. Let’s just say the stock is at $10 by January 2010 and $20 by 2011.
You want numbers? The $700 you invested on the 7.50’s will be worth $7,500 (30 contracts x $2.50) because the stock is at $10 and the 2011 10’s would be worth $5 or $10,000 (20 contracts x $5) if Citigroup is at $15. So, your 2g’s is now worth $17,500.
That is how I’m approaching this trade from here on out. The risk is that this is all fluff and Citigroup’s numbers aren’t going to be as strong as many people feel they are going to be over the next few quarters.
Again, I like these call options and would “buy to open” today for a shot at having a huge payday in the future.
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Each week we will be introducing a new “Watch List” as a way to build and learn the different sectors of the market. The are dozens and dozens of sectors that have three or four stocks that really define their market. We show you how to follow them and create Watch Lists so that you will see where the money is flowing.
All of the current trades you see or that have been profiled will only be available in the Members Area.
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Market Set To Open Higher
Wednesday, December 9th, 2009
9:00am (EST)
The market had a lousy Tuesday and it was one of them days where you just knew we were going to stay in the red. Futures were pointing towards a crummy open and the bulls did not do a good job of holding the Dow above 10,300. We have talked a lot about support and resistance levels lately and while they aren’t exact they help us stay focused.
The Dow finished the day with a 104 point loss to close at 10,285 but we aren’t THAT worried about…yet. The “zones” we have been going through still favor the bulls but we might get one foot ready for the back door if we fall below Dow 10,000. That being said, we still think a “blow the top off the roof” type rally could be in the cards.
The S&P 500 fell 11 points and closed at 1,091. We still have support at 1,067 but if that level fails it could crack the seal for further leakage. If the bathroom line is full and you’ve had a bunch of beers this is how 1,067 is going to feel for us…
From the “Where have you been department”:
Every now and then have we will find a stock that looks really good for a option trade and one of the first things we look for is volume. Most of you know we don’t buy stocks because they take too much capital and the returns from options simply dwarf the returns you get from stocks. Remember, a 5% move in a stock can mean a 100% return in the right option which is why we play the game.
If a stock has low “daily volume” then it means the options are probably thinly traded as well. When we do option trades we try to pick stocks that have a lot of volume because the bid and ask on the options are usually between 5-10 cents and the options are liquid. We also like to pick stocks that are volatile so that we can play them both ways. Call options on the way up, and put options on the way down.
One stock we were/ are bullish on is AthenaHealth (ATHN, $44.96, down $1.10) which hit a high of $47.75 last Friday. Here were our thoughts from July 20th (quotes from that day):
ATHN Could Challenge New High
AthenaHealth (ATHN, $38.03, up $1.64) could see some action as the healthcare reform bill is heating up. The options aren’t as liquid as other stocks…the August 40 calls (QJNHH, $1.55, up $0.55) have only traded 10 contracts.
The September 40 calls (QJNIH, $1.95, up $0.60) have traded about 50 contracts but because of the low volume we may crowd this trade if people start piling in. That could be a good thing as well.
AthenaHealth’s CEO, Jonathan Bush, has made the TV rounds and he is worth listening to. I love his insights on the HealthCare sector but the option pits just don’t have the volume. Let’s see where these things end up in a month or two but because of the low volume, I’m staying away. The stock might be the better buy if you are looking for some quick profits. The 52-week high is $39.29… (END)
Aeropostale (ARO, $31.06, up $0.86) got upgraded to “Buy” yesterday with a long-term price target of $45. The stock made it to a high of $31.50 and held its gains for most of the session. If the company would not have scared the BeJesus out of Wall Street when they announced earnings last week, the stock would be above $35 by now…
As we head to press, Dow futures are up 30 to 10,301 while the Nasdaq 100 futures are higher by 9 points to 1,777. The S&P futures are showing a 4 point gain to 1,094.
Although the market slid, we did pretty well with our trades yesterday. Current subscribers, check the Members Area for the current trade updates this morning.
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