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Wednesday’s Wake-Up Call

Wednesday, July 29th, 2009

9:00am (EST)
 
Futures are pointing towards a negative open after Durable Goods orders came in lower than expected.  Dow futures are down 38, S&P 500 index futures were down 6, while Nasdaq futures were down 7. 
 
I mentioned the bulls were trying to hold Dow 9,000 and with earnings season nearing a close the bulls are looking for the next catalyst. 
 
Bank of America (BAC, $13.34, up $0.25)
 
November 15 calls (BYOKO, $1.00, up $0.05)
 
Entry Price: $1.50 (6/12/09)
Exit Price: $2.25
Return: -33%
Stop: If BAC falls below $11, close the position.
 
Action: This position has gained over 30% since Sunday night’s Weekly Wrap but is still down from an entry price of $1.50.  Open Interest continues to build in the November options as the 15’s have an OI of over 100,000 contracts.  That means there are a lot of bets being placed at the $15 strike and they are very liquid.  This is great if you are trading 50 or 100 lot contracts.  I still like current positions at these levels.
 
For our new subscribers, BofA was below $5 on March 11th when I recommended a couple of call options, May 6’s and July 10’s.  They returned 400% and 500% as BofA stood at $10 a month later.  If you do the math and the stock doubles from here it puts BofA at $26.  These calls would be worth $11 and you would have a 1,000% return on you hands.  Anything is possible, right?  However, all we are looking for is a run past $15 so we can double or triple or money.  (PS, if you haven’t gotten my track record for 2009 or 2008, email us by going to the website and sending us a request)
 
Cisco Systems (CSCO, $21.93, up $0.09)
 
October 20 calls (CYQJD, $2.50, up $0.05)
 
Entry Price: $1.50 (6/2/09)
Exit Price: $3.00
Return: 67%
Stop: $2.00
 
Action:  Tech held up well on Tuesday and Cisco traded up to $21.99.  The 52-week high is $25.25 which is my target for the stock.  The options traded as low as $2.16 so we will keep the $2.00 stop in place. 
 
Green Mountain Coffee Roasters (GMCR, $67.50, down $0.25)
 
August 80 calls (QGMHP, $1.50, down $0.10)
 
Entry Price: $1.40 (7/27/09)
Exit Price: $2.10+
Return: 7%
Stop: $0.70
 
Action:  The goal is to be out of this trade by the closing bell.  We will be watching this one all day as the company reports earnings after the bell today.  These options are inflated meaning the premiums are rich so be careful with this one.  If you can escape with a gain, even if it’s 10%, it may be better than leaving this one open.
 
Buffalo Wild Wings (BWLD, $39.32, up $2.21)
 
August 40 calls (BQUHH, $1.25, up $0.01)
 
Entry Price: $1.10 (7/27/09)
Exit Price: $1.50 (7/28/09)
Return: 36%
Stop: CLOSED
 
Action:  I told you the best time to sell is at the open and these calls traded as high as $1.60.  The first 20 minutes are when the sharks are in the water and we all know sharks usually win these battles.  I can’t stress this point enough to the beginners we have on board.  If a stock is hot, the best time to sell is shortly after the bell because all of the rookie options traders were in there BUYING these call options on Buffalo reporting and beating Wall Street’s estimates.  Each earnings trade is different as you will see and it’s best to have a plan going in and an exit on when to close the trade. 
 
This trading tip is invaluable.
 
Cerner (CERN, $64.18, down $0.81) 
 
August 70 calls (CQNHN, $1.20, down $0.15)
 
Entry Price: $1.30 (7/27/09)
Exit Price: $2.20
Return: -8%
Stop: $0.65
 
Action:  Cerner got a 50 cent pop at the open and these call options trades as high as $1.50.  The company reports after the bell on Wednesday. 
 
Another point I want to make is how some option traders will only look for a 20 or 30 cent move in an option and then sell it.  If you buy 20 contracts and an option goes up 30 cents in price you have made $600.  Do it twice a week and you are making $50,000 a year.  Hard but not impossible.
 
I’m throwing all of this information and tips at everybody this morning because I’m trying to teach you how to use options and the many different ways people trade them.  What kind of profits you want to make is up to each trader.  And each trader’s strategy is different.  Some people like straddles and strangles, some investors write covered calls while others get naked.  “Naked” option trading is not my game but all it means is that you are taking on a ton of risk.
 
Microsoft (MSFT, $23.47, up $0.36) 
 
August 23 calls (MSQHQ, $0.98, up $0.23)
 
Entry Price: $0.78 (7/27/09)
Exit Price: $1.60
Return: 26%
Stop: $0.30
 
Action:  Well, well, well…Yesterday I said “these calls options are technically in-the-money and we only need the stock to recover by 5% to make a decent return off of the trade.”  Microsoft was in the red all morning but made a comeback along with the Nasdaq.  The stock only made a 1.5% gain but the options gained 30%.  Again, it was a short-term trade and I wanted to be out Friday.  Hopefully we can ride this one a little higher but 25% is 25%. 
 
IBM (IBM, $117.28, down $0.35)
 
August 105 calls (IBMHA, $11.69, down $1.17)
 
Entry Price: $3.40 (7/14/09)
Exit Price: $12.00 (7/24/09 1/2 the trade was closed)
Return: 253%
Stop: $11.00
 
August 115 calls (IBMHC, $3.70, down $0.40)
 
Entry Price: $1.05 (7/16/09)
Exit Price: $2.00 (7/24/09 1/2 the trade was closed)
Return: 281%
Stop: $2.00-$2.25, raise to $3.25
 
Action: We closed half of each side of these call options to make it a risk free trade from here on out.  Our stops are in place and you’ll notice I raised the stop on the August 115’s.  IBM has made a nice run but $118 is the new hurdle.  The stock was down 60 cents in after-hours so we may be close to getting stopped out on the other half of the trade.
 
Visa (V, $66.30, down $1.89)
 
August 70 calls (VEHHN, $1.30, down $0.50)
 
Entry Price: $1.60 (7/27/09)
Exit Price: $3.20
Return: -19%
Stop: $0.80
 
Action:  Visa will no doubt be the crown jewel of announcements on Wednesday.  On Monday, the company said it would “continue to meet or exceed” Wall Street’s expectations.  The numbers we want to watch for after the close is 64 (cents a share) and $1.63 billion on the revenue side.  Warning:  If Visa misses or doesn’t impress the Street then these options will drop like a rock if the stock heads south. 
 
DryShips (DRYS, $6.79, down $0.29)
 
August 7 calls (OOCHJ, $0.50, down $0.15)
 
Entry Price: $0.25 (7/21/09)
Exit Price: $0.65 (7/27/09)
Return: 160%
Stop: CLOSED
 
September 7.50 calls (OOCIU, $0.60, down $0.13)
 
Entry Price: $0.35 (7/21/09)
Exit Price: $0.70
Return: 71%
Stop: $0.40, raise to 50 cents
 
Action:  I don’t like giving gains back which is why we closed the August calls on Monday for a 160% return.  The September call options had given us over a 100% gain and our stops were set just above our entry point to protect profits.  I didn’t like the action in DryShips yesterday which is why I raised the stop.  These calls hit a low of 45 cents on Tuesday so if DryShips doesn’t rebound we will let the market take us out with a small profit.  This is exactly why we sold the August options.  DryShips is a very liquid stock capable of making huge moves but let’s take what the market gives us.  
 
Ford (F, $7.14, down $0.13)
 
December 6 calls (FLI, $1.63, down $0.07)
 
Entry Price: $1.25 (5/18/09)
Exit Price: $2.50
Return: 30%
Stop: $1.00, raise to $1.45
 
December 7 calls (FLJ, $1.06, down $0.01)
 
Entry Price: $1.00 (5/18/09)
Exit Price: $1.50-$2.00
Return: 6%
Stop: 50 cents, raise to 75 cents
 
Action:  It is looking as though Ford is trying to build a solid base at the $7 level which would be perfect for this longer-term play.  If we can build a base at $7 then move towards $8-9 then were are golden. 
 
Check back after lunch for an update on today’s action.
 
Rick Rouse

Weekly Wrap for 7/26/09

Sunday, July 26th, 2009

1. Commentary
2. Green Mountain Coffee Roasters Brewing Big Gains
3. Earnings
4. Current Trades & Closed Trades
5. Monday Morning Playbook
6. Closing Thoughts

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1. Commentary

The market continued its upward momentum last week after a wave of better-than-expected earnings helped pushed the Dow over 9,000. Nearly half of the Dow’s components reported earnings and most of them easily topped Wall Street’s estimates. Caterpillar (CAT, $42.00, up $0.74) was one of the Dow’s stars as it had a huge week after making a run from $34 to $42.

The bears had an opportunity to take back some of that momentum on Friday after Microsoft (MSFT, $23.45, down $2.11) and Amazon.com (AMZN, $86.49, down $7.38) dropped the earnings ball. Microsoft missed Wall Street’s revenue number while Amazon missed on its operating margins. Both stocks folded like a cheap lawn chair but the Nasdaq ended the day only slightly lower (-7 points) and finished at 1,965. However, the bulls were able to take the Dow higher by 24 points as it finished at 9,093. The S&P added 3 to close at 979.

For the week all three indexes added 4.0%-4.2%.

It has been an amazing stretch of action for the bulls as they have taken control of the market and have forced short sellers to cover their positions. With the market pushing new highs and crossing over its 200-day moving averages we could start seeing some of that cash that has been on the sidelines come into play.

The one thing we were watching going into earnings season was the tight trading range we had been in for nearly a month and I kept saying that because of this we could get a huge breakout one way or the other. Intel (INTC, $19.36, down $0.12) was the key to jump on board.

In fact, in the 7/19 Weekly Wrap, I had this to say:

“With the Dow at 8,734 and the S&P 500 at 940, I’d say the bulls are going to do something special or we will fall back into a trading range once again? That wouldn’t be so bad but it would set-up a bigger stage for a more explosive move either up or down. However, given the momentum, it appears the bulls are in firm control and willing to push us to new highs. Dow 9,000? S&P 1000? Nasdaq 2,000? Those are the targets on the scope and we have enough meaningful earnings this week to make a run at those levels.” (END)

One out of three isn’t bad and the other two indexes could close in on those targets if the bulls keep running.

**************************************************

2. Green Mountain Coffee Roasters Brewing Big Gains

On June 30th I did a review of Green Mountain Coffee Roasters (GMCR, $68.64, down $0.14) and talked about its recent stock split. At the time, the stock was at $58 and a month later it is at $68. Here were my thoughts at the time with quotes from that day as well:

“Green Mountain Coffee Roasters (GMCR, $58.54, down $0.02) recently completed a 3-for-2 stock split. This is normally a bullish event and there are ways to play these types of news events but you have to be careful.

For example, in the “old” days, you could buy a call option on a stock that was splitting and the stock normally kept going up as did the option. Nowadays, it’s a little trickier.

Green Mountain split its stock on June 9th and the price was adjusted from $93 to $62 to reflect the 3-for-2 split. Up until the split, the stock ran from $75 to $95 in just a month’s time. This is known as the “pre-announcement stage”. That was big money if you had bought a call option.

What usually happens now after a split is what is known as an “announcement pullback”. On June 9th, the stock closed at $62.57. By June 23rd, the stock hit a low of $51.65. That was “big money” if you had bought a put option right after the announcement.

Now we are seeing what is known as the “post split” rally. Since making the low of $51 last week, the stock has challenged $60 over the past few sessions. The key number we are watching is the $62.57 number because that would mean the stock is trying to resume its uptrend. A break above $60 could lead to the test of its 52-week high. Remember, most financial sites will quote $94 as the 52-week high but they do not factor the 3-for-2 split.

So basically, if Green Mountain gets back above $62-$63 it is at new highs

I don’t like any trades for this week in Green Mountain because of the 3-day weekend coming up but let’s put the July 60 calls (QGMGL, $2.00, down $0.05) and the August 65 calls (QGMHM, $2.90, unchanged) on our Watch List. You may be able to “day trade” these for this week by buying 10 or 20 contracts and looking for a 50 cent bump which would get you $500-$1,000 but don’t hold anything overnight.” (END)

Well, that is exactly what we did as we rode the July call options for a quick 70% profit and closed out the August calls on July 1st at $3.55 for a 20% profit.

The July options have already expired and the August 65 calls (QGMHM, $7.80, up $0.14), as you can see, have doubled. In hindsight, we could have left the August 65’s open but it was a “paired” trade and we were only looking to keep these options opened for a short period of time. There was also a pullback to $53 by mid-July. However, when I said the key number we were watching was $62.57 that was the alert to go long again. The stock broke thru this level last Monday.

The point I want to make is that we still have it on our Watch List and I wanted to remind everybody of this “option trade” if you see something like this in the future. We did the right thing by taking quick profits but I did fail to remind you of this level. Although Green Mountain is listed in the Monday Morning Playbook section and will report earnings this week, the easy money has already been made.

Another point I want to make is that some financial sites have the 52-week high at $94.50 but this is not accurate. Green Mountain IS at new 52-week highs and we are looking to take advantage of this trend on Monday morning.

**************************************************

3. Earnings

Monday: ACE Limited (ACE, $48.40, up $1.34), Amgen (AMGN, $60.92, up $1.08), Buffalo Wild Wings (BWLD, $37.65, up $1.23), ChangeYou.com (CYOU, $41.65, up $0.45), Corning (GLW, $17.00, up $0.21), Honeywell (HON, $33.99, down $0.23), Olin (OLN, $14.03, up $0.29), Plum Creek Timber (PCL, $32.35, up $0.19), RadioShack (RSH, $16.06, up $1.49), Sohu.com (SOHU, $63.63, up $0.83) and Verizon (VZ, $31.50, up $0.23).

Tuesday: Black Box (BBOX, $29.83, up $0.41), Coach (COH, $29.31, up $0.08), Deutsche Bank (DB, $72.91, up $0.61), DreamWorks Animation (DWA, $28.26, down $0.12), Energizer (ENR, $59.34, up $0.66), Fresh Del Monte Produce (FDP, $19.08, down $0.24), Jacobs Engineering Group (JEC, $42.28, up $0.27), Massey Energy (MEE, $23.74, up $0.65), McKesson (MCK, $46.71, up $0.43), Norfolk Southern (NSC, $44.84, down $0.52), Panera Bread (PNRA, $55.18, up $0.24), Teva Pharmaceutical (TEVA, $50.35, up $0.16), Valero Energy (VLO, $18.31, down $0.01) and Western Digital (WDC, $30.40, up $0.22).

Wednesday: Akamai Technologies (AKAM, $21.13, down $0.12), American Tower (AMT, $33.48, down $0.29), Callaway Golf (ELY, $5.27, up $0.12), ConocoPhillips (COP, $44.95, up $0.96), Daimler (DAI, $44.85, up $0.77), Flowserve (FLS, $74.65, up $1.65), Green Mountain Coffee Roasters (GMCR, $68.64, down $0.14), Hartford Financial Services (HIG, $15.02, up $0.64), Hess (HES, $53.63, up $0.45), Honda Motor (HMC, $28.35, up $0.04), Moody’s (MCO, $25.93, up $0.41), NutriSystem (NTRI, $15.68, down $0.13), O’Reilly Automotive (ORLY, $41.07, down $0.03), Taser International (TASR, $5.54, up $0.12), Time Warner Cable (TWC, $33.42, up $0.15) and Visa (V, $67.29, up $0.10).

Thursday: Apache (APA, $79.75, up $0.48), AstraZeneca (AZN, $47.54, up $0.44), Barrick Gold (ABX, $35.35, up $0.26), Colgate-Palmolive (CL, $75.10, up $0.52), First Solar (FSLR, $169.43, up $11.65), Genworth Financial (GNW, $6.89, flat), Kellogg (K, $47.92, down $0.21), Las Vegas Sands (LVS, $10.88, up $0.73), MasterCard (MA, $185.47, down $0.40), McAfee (MFE, $44.22, up $0.07), MetLife (MET, $33.69, up $0.93), Regal Entertainment Group (RGC, $14.19, down $0.05), Rosetta Stone (RST, $26.91, up $0.02), Travelers (TRV, $43.22, up $0.61), Walt Disney (DIS, $26.58, down $0.22) and Wynn Resorts (WYNN, $47.29, up $2.62).

Friday: Allergan (AGN, $52.68, up $0.79), Calpine ($13.10, up $0.10), Constellation Energy Group (CEG, $29.50, up $0.49), Dominion Resources (D, $34.59, up $0.69), DryShips (DRYS, $6.23, up $0.05), Kaydon (KDN, $36.72, up $1.28), Snap-on (SNA, $33.32, up $0.62) and Washington Post (WPO, $407.88, up $5.30).

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4. Current Trades & Closed Trades

Ford (F, $6.78, down $0.20)

December 6 calls (FLI, $1.43, down $0.09)

Entry Price: $1.25 (5/18/09)
Exit Price: $2.50
Return: 14%
Stop: 60 cents, raise to $1.00

December 7 calls (FLJ, $0.88, down $0.11)

Entry Price: $1.00 (5/18/09)
Exit Price: $1.50-$2.00
Return: -12%
Stop: 50 cents

Action: Ford announced earnings last Thursday and going into the report I was telling our subscribers that I still liked BOTH call options although they were slightly lower than our entry prices. Ford gave back 3% on Friday but longer-term these positions look solid.

Bank of America (BAC, $12.51, down $0.18)

November 15 calls (BYOKO, $0.75, down $0.03)

Entry Price: $1.50 (6/12/09)
Exit Price: $2.25
Return: -50%
Stop: If BAC falls below $11, close the position.

Action: The action in BofA has been weak since the company announced earnings and the call options are at a 50% loss. This is normally the cut-off on “trades gone wrong” but this position was back at even going into earnings.

These calls will be worth at least $3 if the stock can make it to $18 in 4 months which is when the November options expire. There are times when you will see an option loss 50%-75% of its value before turning around a posting a 100% return. This could be one of those situations so we shall see. For those of you looking for good entry prices, now may be the best time…if BofA can make it to just $16.50 by November these calls are worth at least $1.50 or a double.

Cisco Systems (CSCO, $21.88, down $0.02)

October 20 calls (CYQJD, $2.50, down $0.02)

Entry Price: $1.50 (6/2/09)
Exit Price: $3.00
Return: 67%
Stop: $2.00

Action: I still have a short-term target of $25 on Cisco and I’m hoping we get there within a couple of months, if not weeks. This position was DOWN 50% a few weeks ago and here is the point I was making with BofA. If you will notice, I used longer-term options because when these two positions were profiled when the market was in the process of establishing a trading range. I knew that going into the trade but I was still bullish on Cisco and that patience has paid off.

IBM (IBM, $117.64, up $0.58)

August 105 calls (IBMHA, $12.60, up $0.20)

Entry Price: $3.40 (7/14/09)
Exit Price: $10.00
Return: 215%
Stop: $10.00-$10.50, raise to $11

August 115 calls (IBMHC, $4.10, up $0.40)

Entry Price: $1.05 (7/16/09)
Exit Price: $2.00
Return: 171%
Stop: $2.00-$2.25

Action: I suggested closing some of these call options on both the August 105 and 115 call options on Friday to lock in gains of 250+%. Half of the 105’s could have been closed to lock in a 253% return on some of the position. You could have taken some off the table with the 115’s at $4.00 and locked in gains of 290%. This made it a RISK FREE trade from here on out with the added luxury of participating in any further gains.

USEC (USU, $6.03, up $0.03)

August 7.50 calls (USUHU, $0.26, flat)

Entry Price: $0.52 (7/16/09)
Exit Price: $1.00
Return: -50%
Stop: None

Action: We should get word in a few weeks on if the company is getting funding for a secured loan of $2 billion. USEC has a monopoly on the uranium market and about 30 plants waiting in the wings. Don’t start new positions here because of the nature of the trade.

Fairchild Semiconductor (FCS, $8.69, down $0.14)

August 10 calls (FCSHB, $0.10, down $0.05)

Entry Price: $0.17 (7/16/09)
Exit Price:$0.34
Return: -41%
Stop: $0.10

Action: This trade got stopped out on Friday at 10 cents but I have a strange feeling it could turn positive. These were such cheap out-of-the-money options that we probably could have left them open but the stop was triggered.

DryShips (DRYS, $6.23, up $0.05)

August 7 calls (OOCHJ, $0.30, up $0.05)

Entry Price: $0.25 (7/21/09)
Exit Price: $0.50
Return: 20%
Stop: None

September 7.50 calls (OOCIU, $0.40, up $0.07)

Entry Price: $0.35 (7/21/09)
Exit Price: $0.70
Return: 14%
Stop: $0.20

Action: DryShips is capable of explosive moves and all we need is a run to $7.25-$7.50. This is a high risk/ high reward play and is based on market momentum. The company reports earnings this Friday so we may close the position or at least half ahead of earnings if we can get 50% returns.

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5. Monday Morning Playbook

We are in the process of closing out some trades as we have stops in place to protect our profits. The futures are lower as I go to press and anything can happen between now and the opening bell. If the bulls are going to show up, they will do so early.

If we get a lower open on Monday morning it may provide us a good opportunity to go long if the bulls are serious.

Here is what I’m watching and a list of trades that can be added as well. These trades are going to run around earnings so keep that in mind. Earnings bring extra volatility and price premiums on options so we will have to pick our entry points carefully.

Green Mountain Coffee Roasters (GMCR, $68.64, down $0.14) reports earnings on Wednesday after the bell. We have three days to see if the August 80 calls (QGMHP, $1.80, up $0.05) can make a move. Set an entry price of $1.60 but if Green Mountain opens strong don’t pay over $2.00 for the calls. Also wait until 20-30 minutes after the market is open and use limit orders if this is the case.

Buffalo Wild Wings (BWLD, $37.65, up $1.23) reports after the bell on Monday and we may have missed this one. The company has opened 40 restaurants in 2009 while other chains have slowed growth. In fact, the company just opened its 600th store and is shooting for 1,000. Again, we may be late to the party. The August 40 calls (BQUHH, $1.50, up $0.50) surged 50% on Friday as traders positioned themselves ahead of the report. This has me hesitant on making it an “official” recommendation and I wouldn’t pay over $1.75 for them. Restaurant stocks have been heating up…

Cerner (CERN, $65.89, up $1.67) set a 52-week high on Friday and will report earnings on Wednesday. It’s a play on HealthCare and I like the August 70 calls (CQNHN, $1.60, up $0.55) up to $1.75.

Microsoft (MSFT, $23.45, down $2.11) got pounded after reporting a disappointing quarter and the August 23 calls (MSQHQ, $0.92, down $1.73) dropped a whopping 65%. I believe the sell-off was a bit much but was expected. The company said computer sales we down but some of that could be the fact that people are waiting for Windows 7. There may be a trade here up to $1.00 and Microsoft could rebound if the market continues higher. If we start lower, set limit prices at 85 cents.

All of these trades carry a high degree of risk because of the earnings and the fact that Microsoft could continue lower.

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6. Closing Thoughts

Many of you that have followed me for a while know I can be both bullish and bearish. The bottom line is I love price movement and volatility. Last summer at this time I was preparing us for a steep market correction and we got it. There were a ton of good trades on the way down and that is another thing I want to mention this week. When the market drops, you can make just as much money by buying put options as you can by buying call options which is what we have been doing of late. The key is you have to train your brain not to freak-out when things take a turn for the worse.

However, until the bulls tell us different, we will continue to go long but remember that at times we can get caught by being too bullish. The odds are increasing that we could enter another phase of this bull market and as option traders that means buying more calls than put options. Also, we can’t forget the ferocity that the bears can have on any given day. As we have seen in the past, the market can reverse course quicker than Twitter gets tweeted but the bulls have the momentum.

Keep an eye on the other two levels I have mentioned – S&P 1000 and Nasdaq 2,000. The Dow made the 9,000 target and could make a run to 9,600 if the other two indexes keep moving higher. We have another round of heavy earnings and the China stocks could make some nice runs if earnings come in better-than-expected.

Economic news will also have an impact on things and Friday’s GDP (gross domestic product) and employment numbers will be watched closely.

See ya’ at the opening bell!

Rick@MomentumOptionsTrading.com

Market Ends Higher; Yum, Intel Updates

Tuesday, July 14th, 2009

10:20 PM (EST)
 
Wall Street had a positive day but you gotta have that feeling that the bulls stomachs feel just a little empty.  There was all sorts of good little nuggets that were fueling the bulls fire such as the Goldman Sachs (GS, $149.66, up $0.22) numbers, PPI and Retail sales.  However, it was easy to tell the outcome even before the opening bell sounded as the futures market did little after the wave of positive news before the bell.  As a result, the market was up and down all day until the final couple of hours.
 
The bulls were not going to lose today’s battle but the gains were small given the huge numbers we got.  I mean, come on…Goldman reports earnings of $4.93 a share versus $3.54 and the stock is rewarded a 22 cent pop?  That is why I always preach the “buy the rumor, sell the news” line here in the blog at least once a month.  I knew it was going to happen, you knew it was going to happen but the little guys did’t.  After the upgrade and $8 run on Monday this was baked into the cake.
 
That is why we “scalped” the trade and had our stops set going into the closing bell.  The July 160 calls (GPYGL, $0.11, down $0.68) fell a whopping 85% because Goldman failed to make the huge jump that many option traders bet on.  I use the term “scalped” because that is what I feel like we are doing.  Think about it. 
We knew the Goldman Sachs earnings were out on Tuesday morning and on Friday I had these calls on our Watch List.  Think of it as if we were selling tickets to the Goldmanan Sachs show/ concert and we got the best price we could before the concert started.  Once the concert started, the tickets dropped liked a rock just like the call options. Yes, I told you to wait on Friday because I didn’t like the weekend exposure but we were right back on them Monday morning.  So, that is how I coined “scalping” a trade.  I had a few emails on the subject…
 
Now, here is the other lesson for today.  This is what I mean by cheap out-of-the-money (OTM) options.  Pick any given stock and look at the just out-of-the-money call and put options.  The Goldman 160 call options are still $10 out with the stock at $150, BUT, if Goldman trades to $161 by Friday, these calls will be worth at least $1.00, or 900% higher than where they are currently trading at.  The trade is over and I’m not suggesting these as a play again but I wanted to show you an example of cheap OTM’s which is how we played Goldman.
 
Another example would be if we were looking at a stock like USEC (USU, $5.84, up $0.76) which jumped 15% today.  The July 7.50 calls (USUGU, $0.10, up $0.05) are OTM but gained 100% today on news the company is expecting word on a loan by early August.  USEC is an interesting story and one I started to research but put on the back burner.  The pot got hot while I was away, huh?
 
To make a long story short, the company is involved in our nuclear efforts and is expecting a loan guarantee from the government that would allow them to continue doing what they do.  Now, some option traders will continue to pile on the July 7.50’s in hopes of the stock going higher but that is also asking a lot.  There has been some unusual option activity in this stock over the past few weeks and know we know why.  The July 5 calls (USUGA. $0.95, up $0.65) gained 215% today.
 
Here is another trade where cheap OTM’s paid off in a big way.  I’m still doing research on the trade but add the USEC August 7.50 calls (USUHU, $0.41, up $0.16) to your Watch List.  If the stock falls back these options will get cheaper.  If the stock can break $7 it could run to a new 52-week high.  Again, I don’t know USEC’s business too well or the story so hold off…
 
I am looking at a few other plays right now but nothing is exciting me.  The market could be stuck in a trading range or possibly be setting the bulls up.  Either way, if the King of Financials (Goldman Sachs) couldn’t get Wall Street excited, nothing will.
 
Yum Brands (YUM, $36.23, up $0.56) beat the Street after the bell but shares were lower in after-hours to $34.80, down $1.43.  I was listening to the talking heads beat the drum on an earnings play for Yum but that ain’t looking too good going into Wednesday.
 
Intel (INTC, $16.83, up $0.34) also beat estimates but its shares were up $1.19, to $18.02, in after-hours trading.  If the gains hold, look for Intel to be a catalyst for a Nasdaq rally on Wednesday.
Rick@MomentumOptionsTrading.com

Weekly Wrap for 7/5/09

Sunday, July 5th, 2009

1. Commentary
2. Earnings
3. Current Trades & Closed Trades
4. Closing Thoughts

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1. Commentary

The market ended the week on a sour note after a disappointing jobs report gave the bears control heading into Monday’s opening bell. The news sent the Dow reeling 223 points, or 2.6%, and pushed the index below 8,300 as the Dow ended the week at 8,280.

More importantly, the S&P 500 fell below the 900 level in the final half-hour of trading as it tanked 27 points, or 2.9%, to close at 896. The Nasdaq also folded like a cheap card table as it dropped nearly 50 points, or 2.7%, and settled at 1,796.

It had already been a choppy week as the bulls and bears traded blows but Thursday’s action has left the bulls wobbly heading into 2Q earnings season. The unemployment rate now stands at 9.5%, a 25-year high, and came in below the 9.6% number Wall Street had expected. However, we all know unemployment is headed to 10% and so does Wall Street.

There was some good news sprinkled in with the bad as May factory orders rose 1.2%, which beat a forecast that called for a 0.9% increase. The unemployment figures were released before the market opened on Thursday and we saw a slight bounce once factory numbers were released but that was it. The few remaining bulls that were standing tried to pick the market up but they too packed it in and headed out for the three-day weekend.

The close though was not good and it remains to be seen just how much ground the bulls gave up last week. As usual, Alcoa (AA, $9.86, down $0.49) will be the first to announce earnings on Wednesday and Wall Street will be looking for clues as to which way the market could be headed. Alcoa has missed expectations and reported a wider-than expected loss for the past two quarters and another loss for the current quarter is being penciled in.

Alcoa is expected to report a loss of 32 cents a share and the stock took a 5% dive on Thursday. In March, the stock hit a low of just under $5 a share and has been recently consolidating between $9-$12. Aluminum prices are still hurting so the key for Alcoa to surprise will be how effective their cost-cutting measures have been. The company doesn’t carry the weight it once did as far as getting a clear picture on the economy’s health but can still influence the market’s direction.

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2. Earnings

Monday: None worth mentioning…

Tuesday: A. Schulman (SHLM, $15.66, down $0.11), Greenbrier Companies (GBX, $7.16, down $0.25), International Speedway (ISCA, $25.25, down $0.70) and Ruby Tuesday (RBT, $6.74, down $0.01).

Wednesday: Alcoa (AA, $9.86, down $0.49), Family Dollar (FDO, $27.95, down $0.24), Pepsi Bottling Group (PBG, $33.80, down $0.20) and WD-40 Company (WDFC, $28.42, down $1.48).

Thursday: 3Com (COMS, $4.75, $0.13), Chattem (CHTT, $66.47, down $2.19), Chevron (CVX, $64.42, down $2.10), Helen of Troy (HELE, $17.35, down $0.61) and Shaw Group (SGR, $26.47, down $0.72).

Friday: Infosys Technologies (INFY, $36.21, down $1.12), PriceSmart (PSMT, $16.46, down $0.79) and Progressive (PGR, $14.48, down $0.69).

**************************************************

3. Current Trades & Closed Trades

This section will be updated by the opening bell Monday morning, if not sooner, here in this space.

**************************************************

4. Closing Thoughts

The market is right back at that “floor of support” I mentioned a couple of weeks ago and we did manage to stay within the trading range I had predicted we could see for the indexes. However, we are at the lower end of those ranges and although I have been bullish for the past three months, I’ve got my eye on the exit door if it gets ugly.

The widely tracked S&P 500’s break below 900 was not a good omen and after failing to bust through its 200-day Moving Average, the index is now battling to hold its 50-day MA. The key numbers you want to watch are 875-880. If the S&P fails this level and earnings come in worse-than-expected then we could see a sell-off.

I’m not ready to throw in the “bull” towel or wave a white a flag but there are times when you have to retreat or join the other side when it appears the market is about to take a change of direction. The bulls had a great run from March to June and could still surprise us with another push higher so we will have to see.

The tight trading range has flushed out some traders but I am expecting price action and volume to pick up this week. For the Dow, the bulls will try and hold 8,000 and I would get nervous if we fell below 7,700-7,800. Since hitting multi-month highs in mid-June, both the S&P 500 and Dow have fallen 5%-6%. It appears the bears are eyeing a 10% correction so the bulls will need to stand up and fight if that is the case.

I will be covering all of the action in the Blog so if you haven’t signed up for a subscription, do so today.

Rick Rouse
Rick@MomentumOptionsTrading.com

Weekly Wrap for 6/28/09

Sunday, June 28th, 2009

1. Commentary
2. Palm Continues To Surge
3. Precision Trading Tools & Tactics Live Webinar
4. Earnings
5. Current Trades
6. Closing Thoughts

**************************************************

1. Commentary

The market made a lot of investors nervous last week as the bears took control on Monday after the World Bank cut its global GDP forecasts. The Dow closed at 8,300 that day and the bears mingled around until Wednesday. That is when the bulls decided to show up and provide support.

The big news for the week was Ben Bernanke and his role in Bank of America’s (BAC, $12.75, up $0.40) takeover of Merrill Lynch. He was making headlines right before the FOMC was to announce their decision on interest rates and some circles were accusing of him of a “cover-up.” He was grilled on Thursday and the Wall Street love poured in as the Dow rallied. I have to admit I was impressed with the way he handled himself and you could tell there was a lot he wanted to say but held back.

We got some pretty decent earnings reports from Oracle (ORCL, $21.24, down $0.39), Bed Bath & Beyond (BBBY, $31.03, down $0.05) and Palm (PALM, $16.22, up $2.20) but others disappointed like Nike (NKE, $50.84, down $0.44) and Monsanto (MON, $75.25, down $0.41).

Existing home sales increased 2.4% according to the National Association of Realtors which was a good sign for the housing sector. Although this number was slightly below Wall Street’s estimates, the market took it as a positive. Lennar (LEN, $9.18, down $0.01) got a 15% pop mid-week after it said orders for new homes leapt over 60% from the previous quarter. This didn’t help KB Home (KBH, $13.42, down $1.35) on Friday though. The home builder missed expectations but narrowed its loss year-over-year. The company did go on to say that they expect a “strong” fourth-quarter. File it.

I think the real key for the market bouncing off its lows was the great 7-year note auction we got on Thursday. It was only the 5th such auction ever and the first in like 20 years. It was the best one yet according to some and it provided a backdrop for the bulls to take over the stage.

The Dow finished the week down 101 points and closed at 8,438, down 1.2%. The S&P 500 slipped 2 points and finished at 918, or 0.3% lower. It could have been worse but the Nasdaq, however, managed to squeak out an 11 point gain and finished out the week at 1,838, up 0.6%.

**************************************************

2. Palm Continues To Surge

Palm (PALM, $16.22, up $2.20) continued its rocket recovery from a 52-week low of $1.14 as it gained another 15% on Friday. The company reported earnings Thursday after the bell and investors loaded up on the stock the minute the market opened.

We knew the Pre was going to be a huge hit and the smart-phone has put Palm back on the map. The latest quarter wasn’t anything to write home about, in fact, the firm reported a 4Q loss. However, the loss was less than what Wall Street had expected and analysts are predicting some huge numbers going forward. Most pencil pushers think the company can return to profitability sooner rather than much later.

Palm is just one of many players in the smart-phone market and many thought we would get a pullback to $12 when the company announced earnings. They were wrong and one of the biggest reasons was the “short-squeeze” going on.

There were a number of heavily traded options in Palm and the most active strike price for the July chain were the July 17 calls (UPYGT, $0.85, up $0.55). These options jumped 180% from their previous close of 30 cents but you still could have made a double on Friday if you were actively following these call options. The July 17′s opened at 50 cents and traded as high $1.05 when the stock reached a high of $16.59. Nimble traders did well spotting the move.

It remains too been seen if Palm’s stock can add to its gains in the coming weeks and months but investors have been waiting for a pullback to get in the stock. Many have now piled in and that can be a dangerous game given the other players in the ring (Apple and RIMM) and Palm will need to prove it’s not a one-trick pony.

The easy money has been made already in the options and there will be an opportunity for a trade down the road but not now. We have been in and out of Apple (AAPL, $142.44, up $2.58) and Research In Motion (RIMM, $70.66, up $1.36) trades in the past but Palm is one I have been watching from the sidelines.

We may have missed the train on the way up but that doesn’t mean there won’t be a trade on Palm in the future. Big things are happening at Palm and if all goes well the company could push for more market share. However, if things don’t go all that well, there may be a chance to buy some put options if there appears to trouble ahead.

**************************************************

3. Precision Trading Tools & Tactics Live Webinar

I wanted to take some time this week to tell you about an upcoming event that we have planned in July. To start, a lot of people ask me how I come up with trades or what do I look for and my response each and every time is “price action”.

Picking an option trade and figuring out where a stock needs to be for you to break even on a call or put option is easy. Figuring what your potential profits could be is also easy but the key ingredient you need is price movement.

Each trader is different and everybody has their own tools and charts they like to use. However, if you are new to options trading, how do you go about learning these things? Well, you find a mentor and listen to every word he speaks.

One of our traders, Mike Albright, is going to be doing such a seminar and I’m personally inviting you to attend. I have known Mike for a few years and we talk often about the market and the students we have. He is super bright (hence, the last name) and is very easy going. You will enjoy talking with him.

I can tell you he is excited to be putting on this course and I’m so excited I even signed up to sit in. Here is a short introduction from Mike:

“As you already know we make our living on price movement. Being able to know when price is going to change direction is everything. And I love what Todd’s already taught you about this, but I’ve got a few other ‘trading tools’ I believe you must learn to make you an even better trader.

When you learn how to use internal and external Fibonacci and extension lines along with floor trader pivots and support and resistance lines off of multiple time frames you will be able to create very powerful areas of confluence.

Once ‘price’ gets into these zones all you need to do is use one of the price and volume patterns that I will teach you to take the trade – you will then be amazed at the accuracy, consistency and profitability of these trade set-ups. That’s it.

As you already know price moves because of the shift in supply and demand. I will personally show you how to recognize these shifts so YOU too will be able to trade them successfully”.

His quote to me folks was that he could “make a baby understand charting” if it signed up for this webinar. The stuff Mike will be teaching you is being offered at an incredible rate and you should really give him a call. I’m telling you, even if you just call him, you will convinced of his trading methods that you won’t be able to wait for the webinar which will be on July 11 & 12.

We are offering this on a weekend because we know many of you have full-time commitments during the week. Even if you can’t attend the weekend session, you can still sign up and watch the video and presentation at your convenience.

Like I said, I plan on being there and I asked him if I could offer everybody who reads the blog the same rate students get. I’m going to provide a link but please make sure when you call, you say you are a reader of the blog or “Rick said that I could get the special rate”. The general public will not get this rate so make sure you mention me or the blog.

The link is good for the discount and give Mike a call before signing up. He can explain the webinar in greater detail and he is fun to talk too. His number is 360.697.1573.

Thanks everybody and make sure you give Mike a call. I want his phone ringing off the hook Monday morning. (I always razz him because he is on the West coast so the market opens at 6:30am. I’m always up because the market opens at 9:30am here on the right coast)…

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4. Earnings

Monday: Apollo Group (APOL, $68.50, up $1.18) and H&R Block (HRB, $15.42, down $0.07).

Tuesday: Investors Real Estate (IRET, $8.75, up $0.13), Schnitzer Steel Industries (SCHN, $61.36, up $1.16) and Sealy (ZZ, $2.02, down $0.02).

Wednesday: Constellation Brands (STZ, $12.28, down $0.22), General Mills (GIS, $55.28, down $0.67), Lindsay (LNN, $33.82, up $1.20) and UniFirst (UNF, $37.40, up $0.43).

Thursday: Acuity Brands (AYI, $29.28, up $0.26), Methode Electronics (MEI, $6.94, up $0.06) and MSC Industrial Direct (MSM, $34.90, up $0.37).

Friday: Market CLOSED.

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5. Current Trades & Closed Trades

I will update this section on Monday.

**************************************************

6. Closing Thoughts

The Dow finished the week at 8,438 and I echoed the “floor of support” at 8,250 on Monday morning before the opening bell and the Dow closed at 8,300 that day. On Tuesday and Wednesday, the Dow hit a low of 8,239 and 8,246. Then we got a bounce. If it holds then it means we are reading the map right.

I have mentioned key levels we are watching for the major indexes in the blog and so far the support and resistance have been right on point. Investors and talking heads blew things out of perspective when the market showed signs of breaking down at the beginning of the week but we held support.

I’ve been on the soapbox saying we should see some fireworks in July and not because of the 4th but because of earnings season. The one thing I am seeing is even if 2Q earnings fail to impress Wall Street, the backend of the year is going to be very bullish. If we hold and go higher, we could start to see “new money” come into play which could be bullish for the summer. If not, we drift lower and play the put side of things until the bulls make another charge.

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    REGINA L.
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    Rick & Team, GREAT Call on NKE for my two trading accounts:
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    I see that you took a loss on some of these. It’s all good. I look to trade your “ideas” not your exact calls. I THANK YOU! For your ideas and commentary. Keep up the good work. And keep those ideas coming.

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    Loving this subscription so far! I got into the BRK feb 76 calls the day you talked about right before the split...now up over 300% (0.70 to 2.475)! Keep the good picks coming and let's see some OSIS and EMC upside soon! Just wanted to share my positive enthusiasm on your newsletter...it gives us individual investors great ideas on not only the options market, but also the broader equity market! Case in point is BRK...I can't always read the breaking business news but its easy to read your twice daily updates on my smartphone...helped me get some BRK shares immediately after the split which I will hold for the long haul! Thanks again!

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    Aloha Rick - Thank you so much for the great CL pick. I am not sure if there was buy-out/merger news or what but at 3PM today Colgate-Palmolive absolutely EXPLODED to the upside, and my calls turned into green candy when they went from 1.40 to 3.8 in a matter of seconds! I even sold a few for over 4.0! Much thanks and keep the solid picks up my friend, honestly. Only a fool would scoff at 267% gains... Peace!

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    “I did follow a lot of your trades with 1-2 contracts per trade and YTD I’m up 108%. I try not to follow blindly by not entering all of your trades and sometimes entering the ones you don’t. I entered AIG a few weeks ago against recommendation – that one hurt.”

    BRYAN C.
    “I have been following you for several months and am interested in the new service. I hate to see the free service go away but as they say, “all good things must come to an end”. My ability to join will be greatly influenced by the monthly fee so I’m very curious to see the new prices. Thanks for making April a great month for me and my family.”

    JOHN H.
    “I have really enjoyed the past month since finding your blog. You have made some great calls. I would appreciate info. on the new options mentoring program. Thanks.”

    JEFFREY
    “Hi Rick, I have been following your blog for several months now and I would like to be including on the list for your new service and to receive more information about it. And yes I was a Dendreon winner with your tips. Turned $280 into $7700, and literally saved my butt.”

    ED
    “I made over 6k on your Dendreon trade, and I’m very interested in learning how you pick and trade options. Sign me up.”

    GREG
    “Rick – Wow what a day! I got in at the Dendreon calls at $2.25. Thanks to for your advice. I appreciate that. This company has a lock on this type of therapy and no one else in the world is close. Kind of reminds me of the type of companies that Peter Lynch and Warren Buffet suggest that investments be made in. Companies that can build a moat around their business model, that allows them to charge a premium for their product or service. In other words - a monopoly.”

    KEN
    “Hi Rick, Thank you so much for the Dendreon trade, I made almost $10,000 with that trade with a little over $2,000 investment. You have shown me the power of options trading. Again, thank you so much for all your inputs.”

    GARETT
    “Hi Rick, thanks for the encouragement to play the dendreon calls! did freaking great! Got in the first lot at $1.44 on 3-24-09, sold at $2.45, 70% not bad. Bought it back at $2.30 on 4-7-09 closed out on 4-14-09 for 454% gain! Wow! I love it when that happens. So, thanks the encouragement to get back in when others were saying sell, sell, sell. Keep up the good work.”

    TERENCE
    “Rick – Thanks for Dendreon – it has made all the headlines today! I missed on RIMM earlier, but I’ve been holding onto DNDN calls since 3rd week March. Of course today it all paid off today, as DNDN rocketed up.”

    Jan. 31 2012
    Rick, new member...Studied all current trades, did some chart work,picked ZNGA, PEP, MGM...Sold on Feb. 2 for $3600.00 profit...Cost for 1-year membership to your newsletter was less than $1000.00..All I have to say..Thank you. John H –

    3/18/11
    Rick, I purchased 10 contracts of the Nike March 85 puts Thursday afternoon for $2.00. Thing is, I was upset because the puts went down to $1.60 or so before the market closed. Well, needless to say Nike didn’t impress Wall Street and when I turned on the computer this morning the puts were worth $7.10! Sold them for a $5,100 profit!. Thanks again, you are the MAN. Chuck J-

    2/3/12
    Hi Rick,

    I will start off with a thank you for your time and dedication to all
    the research you and your team commit yourself to. This is not me just being excited about the profits I have accumulated aka (bank) ! You have helped me get back to the passion I had of researching stocks/options. Keith N-

    Hi Rick,

    I want to share my great results on GMCR. Based on your comments on February 15th, I bought 20 options at $0.28. They closed today at $7.00, which is a 2,300% gain. My $560 dollars turned into $14,000 in less than a month. In decades of trading, this is my single best trade ever. Thank you! By the way, the Dow was down 228 points today and I could care less. What a great trade. It proves the amazing power of options. I am so grateful for your service, which calls it straight all the time, your options trading manual, and most of all, your amazing skill
    at finding winning trades. I have attached a copy of the trade from
    my brokerage screen.

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