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Wednesday, September 2nd, 2009
9:10am (EST)
Futures are up slightly lower as we get ready for this morning’s trading action. Yesterday, the bears ruled Wall Street and it looks like they could get the ball first this morning. Dow futures are down 25 points to 9,278 while the Nasdaq futures are lower by 4.5 points, to 1,591. S&P futures are down by 3.5 points and are at 993 as we head towards the opening bell.
There are a couple of “winners” and “losers” I want to talk about this morning but neither stock is worth owning.
Well, if you didn’t think American International Group (AIG, $36.00) had iny big moves left in it you were wrong. I profiled this stock all last week and how it had made an incredible move from $13 to $50 in August. I also mentioned to close the September 35 calls (IKGII, $5.05) on Friday when they were at $15.80 and had touched a high of $21 for the day. Look at them now.
The September 25 puts (AIGUY, $1.15) were trading for 40 cents last Friday and have jumped nearly 200% since. I told you these kind of strangle trades can be a monster if you manage them correctly. AIG is down $2.12, to $33.88, in pre-market trading.
It seems there are quite a few “famous” or “infamous” names on the “stocks for under $5″ list. It looks like there is another one trying to rise from the ashes of past glory days.
Vonage (VG, $1.43) was up 45%, to $2.05, in the after-hours last night after it said Apple (AAPL, $165.30) has approved its mobile application for the iPhone and iPod Touch. This news was not a surprise when the stock was at 60 cents but the easy money has already been made.
Don’t chase Vonage. The stock is up 70 cents to $2.13 in early action.
The Members Area has all of our current trades and if you are a subscriber, please check the updates for this morning. We got off to a good start with First Solar (FSLR, $114.98) yesterday.
Tags: AAPL, AIG, American International Group, options trading strategies, VG, Vonage
Posted in Market Commentary, Option Trades | Comments Off
Friday, August 28th, 2009
2:00pm (EST)
The Dow is struggling after starting off the morning in the green. Intel (INTC, $20.25, up $0.78) got the ball rolling after the company raised its sales forecast for the current quarter from $8.9 billion to $9.2 billion and Dell (DELL, $16.08, up $0.43) came in with better-than-expected earnings. However, all the major indexes are now lower as the Dow has fallen 65 points and is currently trading at 9,515. The Nasdaq has slipped 6 points to 2,021 while the S&P 500 is down 5 to 1,025.
We added the Citigroup (C, $5.20, up $0.15) call options this morning and there are a few other names I like and don’t like.
As far as specific stocks, make sure you close the AIG (AIG, $49.81, up $1.97) call options today. The stock hit a high of $55.90 this morning which represented the perfect opportunity to sell the September 35 calls (IKGII, $15.80, up $1.70) which printed $21.00 today. Incredible. I’ve got another strangle option trade in the works for Sunday night and AIG has proven the kind returns that can made with strangles
DryShips (DRYS, $6.05, down $0.19) couldn’t carry the momentum from yesterday so there was no day trade.
I’ll be back Sunday night with the updates.
Rick@MomentumOptionsTrading.com
Tags: AIG, c, Citigroup, Dell, drys, IKG, INTC, Intel, options trading strategies
Posted in Company Commentary, Financial Stocks, Market Analysis, Option Trades | No Comments »
Thursday, August 27th, 2009
10:30pm (EST)
Timing is everything.
Man, this market is fast moving and exciting isn’t it? Good news, bad news, earnings hits and dips, jumpy oil and dollar currency movement. Bernie has cancer (or not) and now Stanford has a “rapid” heartbeat. Bernanke gets to run the show for a few more years and our nation’s deficit continues to hit new highs. Oh, and healthcare. Not to mention the historic nature of the market in September and October…which is when 3Q earnings hit. Have I left anything out? Yeap…Japan’s unemployment rate hits record highs.
Yet, we keep going higher.
This market has got a lot of moving parts and all of this means exactly what I’ve been saying. Get ready for the volatility. If American International Group (AIG, $47.84, up $10.15) can make a move from $12 to $50 in a month then I can’t wait to see what is around the corner for other stocks.
The volatility has added some extra spice to our trading and our risk only gets higher as we head out into the storm folks. It remains to be seen if it is the Perfect Storm or Smooth Sailing but as traders we can be prepared. It also means we are just missing some good entry and exit points on some of our trades.
For example, when I was doing today’s blog I was watching DryShips (DRYS, $6.24, up $0.55) as it was trading at $5.65 and was thinking, “cool, I need to look at some longer-term call options” because in Sunday night’s Weekly Wrap I had this to say about DryShips and the Baltic Dry Index:
“I’m not ready to jump back into any option trades just yet on DryShips but it does get interesting when the stock dips below $6.”
Next thing you know the stock is up 10% from noon to 1pm today.
The September 6 calls (OOCIF, $0.58, up $0.38) soared from an open of 25 cents and traded to a low of 15 cents before hitting 60 cents. When I said timing is everything it meant exactly this.
DryShips popped on news that one of China’s dry bulk companies reported a smaller-than-expected loss for the quarter. They also said “operational conditions for the second half of the year will remain difficult.” Still, 26,000 call options traded on the September 6’s today.
Watch these call options on Friday..they may be good for a day trade if the trend is higher but make sure you confirm the trend. That means watch the opening bell at 9:30am, especially the first 20-30 minutes of trading and see if the stock pulls back. If not, and the trend looks higher you may be catch DryShips trading up to $6.50 or even $7. If so, there may be an opportunity to put a little money in your pocket.
These stocks that are trading between $5 and $20 are seeing some tremendous moves which is rare for low priced stocks. Then again, many “blue-chip” companies like AIG and Citigroup (C, $5.05, up $0.42) haven’t been this low in decades.
Yeah, Citigroup did us dirty. We had a stop of 21 cents for the January 7.50 calls (CAQ, $0.30, up $0.10) which traded to a low of 20 cents yesterday. As fate would have it (or my wallet), our stop was a penny or two off from keeping us in the trade but remember we already made a huge 114% return when we sold half of the position at 30 cents.
I’ve been telling you that I like Citigroup two years out and some of you may not want to make a fast buck which is my strategy most of the time. However, I still like these options although they are not “officially” listed in our trade section anymore.
You have to remember this as well and I hate to sound like a broken record. If you make a $1,000 in a day or two on a solid trade and you want to risk $500 of that on trades like Citigroup and Imax (IMAX, $9.39, down $0.02) and hold them through this volatility then it is cool. That way if you know you made a $1,000 or $2,000 or even $4,000 with AIG this morning then you can afford to take some of the riskier trades I put on.
I’m trying to trim our exposure because I don’t like holding a lot of positions open over holiday weekends. We do still have a few longer-term trades on but the money is moving really fast out there. If it keeps up I may have to start doing updates every two hours…
I’ll be back in the AM with a fresh morning outlook.
Rick@MomentumOptionsTrading.com
Tags: AIG, Baltic Dry Index, Citigroup, drys, DryShips, Imax, options trading strategies
Posted in Hot Stocks, Market Commentary, Trading Tips | No Comments »
Thursday, August 27th, 2009
12:45 pm (EST)
Wow. I knew last night/ this morning when I was writing the American International Group (AIG, $48.19, up $10.50) blog, I was thinking to myself… “this thing really could hit $50.” Folks, there are no shares to short and the only play has been long for the past few weeks. From 3:30am this morning:
“If AIG continues to shoot to the moon then the calls will continue to go higher and they could triple again if AIG goes to $50. They would be worth $15.”
AIG has hit $50 today and is currently up 30%. The call options I’m talking about are the September 35 calls (IKGII, $15.00, up $9.55) which closed yesterday at $5.45. As Biggie Smalls would say..”It Was All a Dream”…but this dream has come true. Bam, The September 35’s are right at $15, up 175%. Folks, they opened at $7.50 and have doubled.
Of course, the September 25 puts (AIGUY, $0.40, down $0.16) are trading lower BUT look at how much value they have despite the $10 pop in AIG.
The real story here is this. Remember, AIG did a 20-to-1 REVERSE stock split when the shares were at $1 so really shares are back up to $2.50. There is buzz that this thing could go to $100. In reality, that would get the stock back to $5 if the split wasn’t done.
I told you there were a lot of ways to play this stock and if you are in the September 35’s, you can sell now and lock in a 200% gain from the strangle trade or you can place a stop around $12 if you want to see if AIG continues to run.
For those who were thinking outside the box this morning when the opening bell rang…
The September 50 calls (IKGIX, $6.45, up $5.32) are up an astounding 470%. The calls opened at $1.65. So what does this mean? Well, if you would have bought 10 contracts this morning for $1,650 you would be looking at a profit of $4,800.
Now, the reason the put options haven’t dropped to zero is because options traders are selling a lot of the September 50 calls because there is no stock to short. Continue to hold the September 25 puts and make sure to set a stop on the calls.
Rick@MomentumOptionsTrading.com
Tags: AIG, American International Group, option picks
Posted in strangle option trades | No Comments »
Thursday, August 27th, 2009
3:30am (EST)
The early bird gets the worm…
Last week I had moved American International Group (AIG, $37.69, up $3.72) to the top of the food chain (our Watch List) as the stock stood at $33. Now, remember, AIG was at $13 at the beginning of the month. On August 20th, here were our notes (quotes from 8/20):
“American International Group (AIG, $33.49, up $6.85) is up 25% today and it’s hard to believe the stock has rebounded from a low of $13 since the beginning of August. Incredible. The September 35 calls (IKGII, $4.10, up $3.05) have soared nearly 300% after opening at $1.22. There is a combination of a lot of things going on with AIG right now and although I don’t trust this dog to go long, there may be a chance for a STRANGLE option trade. The September 25 puts (AIGUY, $1.65, down $1.05) have dropped 40%.
The stock is up on some CEO fluff who believes he can “maintain shareholder value”. Good grief. Give me break. He failed to mention that his company did a 20-to1 reverse stock split and right now the shorts are getting hammered. I’m going to do some more research on this one but a strangle trade is when you play both sides of the ball hoping for a big move. AIG is so volatile that it fits the bill. You can do 2-to-1 with puts to calls but it is expensive. I almost want to suggest the put options straight-up but short squeezes can be tough to predict. I do know that AIG is not worth $33 right this second but it’s a tough call. Don’t take any action just yet because I’m thinking out loud.” (END)
Here is how the “strangle” option trade is playing out. A strangle trade is like a “chicken trade” because if you don’t know the direction of the stock but you know it is going to make a big move, you buy an out-the-money call and put option about the same strike prices away. Sometimes you can go way out with the strike prices and I leaned heavier on the puts as I listed the 25’s.
The September 35 calls (IKJII, $5.45) were going for $4.10 and the September 25 puts (AIGUY, 56 cents) were at $1.65. That was $5.75 to do one contract of each option or $575 last week. Now, AIG was up 10% yesterday when news hit that its old CEO, Hank Greenberg, is being courted by the current CEO for tips on how to run the company. The stock zoomed in the last half hour of trading when word hit Wall Street and in after-hours trading shares stood at $39.29.
If things hold the call options will continue to go up and the put options will take another hit. However, here is the beauty of the trade. It may sound sexy and it may sound hard to do but I’m showing your first hand how strangle option trades work and how easy they are to do.
At current prices, before the opening bell rings, the call and put option are worth $6 total. $5.45 for the calls and 55 cents for the put options. Your entry price for both had you done the trade last week was $5.75 so now you are at $6. A small gain but you are not losing money.
Let’s say AIG opens to over $40..then the call options could be trading at $7. The puts will fall but don’t worry about that. Let’s say you can exit the call options at $8. That gives you a 33% return on the trade even if the put options expire worthless. If you sell the calls into a strong open or another rally then you have made your money AND you have a risk-free trade on the puts that you can leave open.
Now, let’s say the market tanks in September and everything starts to melt like candle wax. In the downturn, let’s say AIG falls back to $20. That would mean that the September 25 puts that were left for dead will be worth $5. That brings our total return to $12-$13. You sold the call for $7-$8 and you would sell the put for $5.
If your entry price is under $6 then you have just doubled your money folks!
If AIG continues to shoot to the moon then the calls will continue to go higher and they could triple again if AIG goes to $50. They would be worth $15.
As you can see, there are a lot of factors left that will determine how much you make on the trade but by knowing what your profit targets are AND what the outcome could be if this or that happened then you take out all of the emotion.
I wanted to update this trade because the market is acting weird. I don’t often say that but something is up. We get GREAT economic news yesterday and the day before and we get no big push to Dow 10,000. Before, we were getting crappy news and the market was banging out new highs. The indexes are still higher but it feels like we are reaching a ceiling. Once again, we either break through or we fall back down. It’s that simple.
The point is that RIGHT NOW this is a trader’s market which is why we are taking quick profits and going out 6 and 8 months on bullish option trades. Look, we haven’t dropped or had a 10% correction and we may or may not get one. The key is we have to be smart while others are worried on direction.
Market direction is easy to “feel” and you will get the same feeling once you know how this beautiful game is played. If we can make 33% in a week in this environment then we aren’t going to look a gift horse in th mouth.
Honestly, I wanted to get some of our other trades closed and lighten up before the holiday weekend before I came back to this trade. Many of our positions are now closed and I was going to take another look at AIG on Thursday with these same options. Well, the market threw us a curveball and we got caught looking in the bottom of the 9th. Congrats to anyone who took this trade while I was thinking out loud and there may be another way to play this puppy. However, we will have to see how the stock opens and where it trades afterwards.
If I see another setup, I’ll let you know in the 1pm update.
Futures are lower as I go to press. I may miss the opening bell this morning which is rare but I wanted to get this out in case I’m not back in time for the fireworks. I may do an update at 11am if needed but I will be back by 1pm (EST).
Tags: AIG, American International Group, strangle option trades
Posted in Option Trades, Strategies, Trading Tips | No Comments »
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Wednesday’s WakeUp Call
Wednesday, September 2nd, 2009
Don’t chase Vonage. The stock is up 70 cents to $2.13 in early action.
Tags: AAPL, AIG, American International Group, options trading strategies, VG, Vonage
Posted in Market Commentary, Option Trades | Comments Off