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8:30pm (EST)
One of my favorite trades is the “history repeats itself” trade. These are trades on stocks that you actively follow and you know how to play them on the way up AND on the way down.
One such trade that has fit that bill again is American International Group (AIG, $9.48, down $3.62). For those of you that have just signed on, AIG was a huge trade recommendation last year that returned our subscribers over 800% as the stock was one of the first in the financial sector to take a beating. That trade can be viewed by typing in AIG in the search box (to the right) and reading the past articles.
Folks, the point I’m trying to make is that were are showing you how to make money that will last you a lifetime. Hey, you will have to do something when you retire so why not learn how to make money instead of letting someone else manage your money? And why not learn the little tricks that can make you monster profits in a short amount of time?
There are a lot of ways you can go about trading but it really comes down to two types. Fundamental trading and chart trading. I do both which is why I talk about a trade AND talk about the chart. With charts, you learn support and resistance levels. With fundamentals, you go on what you know about the company and its products.
The AIG trade was ALL a fundamental trade but the chart showed the same breakdown that my buddy Mike Albright teaches. Man, I’m telling everyone now, you have to take his upcoming class this weekend. More on that in a minute.
When I told you last week about the reverse stock-split, I told you it would not be good for shareholders. Last week I did a couple of write-ups on AIG when the stock was at $18. The stock was at a $1 when the company did a 1-for-20 reverse and here is what I said before the holiday weekend:
“When a company does a reverse split, they normally don’t turn out to well, meaning, the fundamentals haven’t changed. If the fundamentals or outlook hasn’t changed, what makes the stock attractive?
I’m not sure if we get a repeat performance if and when they do list options on the stock again but there may be an opportunity down the road to make something on a stock worth much of nothing.” (END)
The point is when you see this in the FUTURE, remember the returns that put options can provide if a weak company does a REVERSE stock-split. Of course, nothing is a guarantee but more times than not in my 20 years of investing has a reverse stock-split meant good news for stockholders. There will come a time and these are the type of returns that can be made:
The July 18 puts (AIGSR, $7.25, up $1.15) opened at $4.80 yesterday and traded to a low of $3.50. Depending on where you got in most of you are looking at gains of 50%-70%. The July 15 puts (AIGSO, $5.80, up $3.06) could have been picked up for $2.80 and hit a low of $2.34 on Wednesday. If you got in under $3 then you are looking at triple-digit profits. I had mentioned to set a stop of $3.50 this morning but that was never in danger of being triggered as AIG folded like a cheap lawnchair.
Another way you could have played today’s action was this way. When the Blog was posted this morning at 10am, you could have taken a look at the July 10 puts (AIGSJ, $1.75, up $1.26) which opened at 65 cents. They closed at 50 cents yesterday. AIG got hammered from open to close and it clearly visible in the charts as well.
Now, another important lesson that you need to learn is when to take profits. I always target 100% return for every trade and try to keep losses at 50%. Once you get over 100%, roll your stops up. And if you are up over 100% before the weekend, at least take some off of the table. ANYTHING can happen over the weekend, good or bad, and a major news event could have a profound impact on your positions. You can still leave some open to take advantage of any further gains but you have to learn when a trade has run its course.
Keep an eye on AIG on Friday but remember these pointers.
Now, back to Mike Albright. I have been talking about the weekend webinar that he is hosting and here are a few more details. All you need is an internet connection and some speakers. Mike is going to be going over charting and he will show you exactly when to take trades. These trades are based on a “240 minute” chart which is what he wanted me to share with you tonight.
As we talked about his webinar, we also talked about the action in AIG today. I had explained to him the reasoning behind the trade (reverse stock-split) and he pulled up a chart. Bingo. He said the secret to calling big moves is what he is going to be teaching and AIG showed this big breakdown. Amazing. So we looked at another stock.
I told him about Amgen (AMGN, $58.13, down $1.37) and how the stock had jumped $8 yesterday and explained to him when I looked at a multi-year chart that resistance was at $61. I mentioned how if the stock could break through $61, it could make a run to $65. The stock made a high of $60.95 and broke down like a rented mule after peaking yesterday morning.
Mike also said it was clear on the charts where the volume and price action would have told him to short the stock right there yesterday. A quick way we could have played that would have been to use the July 60 puts (YAASL, $2.25, up $0.75) but I was looking for the breakout, not a breakdown.
The point is you can now learn both option trading methods. And when you combine the two you have the chance to find some MONSTER trades.
Mike has also informed me that if you cannot make the weekend webinar that he will be doing 3 night classes as a follow-up. These classes will be unique in that they may also offer trade picks.
I’m telling you, Mike and I work well together and you will enjoy his perspective on the market. He will show you how to short market tops and find exact entry and exit points much like I do but from a charting point of view.
Folks, if you ever wanted a simple, easy way to understand charting, you should really consider taking the course. He has also given the readers of the Blog a special rate which is dirt cheap when you really get down to it. However, you MUST sign-up before 1:30pm (EST) on Friday for the webinar and special rate.
To join us this weekend click here:
Thanks everybody and I’ll be back in the morning with an update.
Rick@MomentumOptionsTrading.com
Trade Updates/ AIG Watch
Thursday, August 20th, 2009
12:30pm (EST)
Abercrombie & Fitch (ANF, $31.68, up $0.32)
September 32 puts (ANFUJ, $2.05, down $0.20)
Entry Price: $1.25 (8/14/09)
Exit Target: $2.75 (closed half at $2.75 on 8/19)
Return: 120%
Stop: $2.00
Action: Abercrombie has bounced back a little today and I suggested closing out the play yesterday after the calls hit a high of $2.90. Monday night, here were my thoughts:
“Abercrombie was a train wreck all day and we did well by buying the puts during Friday’s run-up in the shares. Our exit target is $2.50 but we may get more juice out of this lemon if ANF dips below $30. Notice our stop was raised to protect profits” (END)
Well, there was one more squeeze left in that lemon but that is it. If you left half of the position open, the stop of $2.00 was hit earlier this morning so this trade is now officially CLOSED.
Bank of America (BAC, $17.17, up $0.42)
January 20 calls (BYOAT, $1.30, up $0.10)
Entry Price: $1.18 (8/12/09)
Exit Target: $2.20
Return: 10%
Stop: $1.10-$1.15
Action: BofA is back over $17 again after hearing our footsteps. We raised the stop Monday night to $1.15 and the stock has rebounded nicely since. The gains aren’t as great as some of the closer month options. For instance, the August 17 calls (BYOHQ, $0.27, up $0.12) are up 75% today but they EXPIRE on Friday. At current levels they are only worth 17 cents so you can see how much premium is built into these options with only one day left. I went further out to protect us from a market decline and if we don’t get one we can still enjoy the gains.
Citigroup (C, $4.34, up $0.21)
January 7.50 calls (CAQ, $0.17, up $0.03)
Entry Price: $0.14 (8/12/09)
Exit Target: 50 cents
Return: 21%
Stop: None
January (2011) 10 calls (VRNAB, $0.44, up $0.02)
Entry Price: $0.40 (8/12/09)
Exit Target: 80 cents
Return: 10%
Stop: None
Action: Citigroup is getting a lot of Wall Street love this morning as it is showing a 5% pop. I wish I would have gotten you in the August 4 calls (CHW, $0.34, up $0.19) this morning but I just sat here and watched them because we already have two open positions. They are up 125% but again, these are one of them cheap-in-the-money call plays that you could have played during expiration week and they opened this morning at 15 cents. I don’t think you gamble with them at current levels but these are the types of trades that I was talking about…read on.
Home Depot (HD, $26.63, down $0.12)
August 26 puts (JGLTM, $0.06, down $0.01)
Entry Price: $0.54 (8/17/09)
Exit Target: $1.00
Return: -89%
Stop: None
August 25 puts (HDTE, $0.01, flat)
Entry Price: $0.26 (8/17/09)
Exit Target: 50 cents
Return: -96%
Stop: None
Action: These options expire tomorrow and it’s highly unlikely they make it back to positive territory. However, you still have to watch them in case they do end up in-the-money. The premiums weren’t that much so when you see a loss of 99% it isn’t as bad as it looks. I showed the Citigroup August 4’s call options in the aforementioned trade so that you would understand that I believe it is okay to play cheap out-of-the-money options. I usually only do a few trades during these weeks and Home Depot was the only one for August. We had a great July when we cashed in our several of these types of trades but the market was just too choppy for Home Depot.
Imax (IMAX, $9.18, up $0.05)
September 7.50 calls (IMQIU, $1.70, flat)
Entry Price: $1.90 (8/4/09)
Exit Target: $3.00
Return: -11%
Stop: $1.00
March 2010 12.50 calls (IMQCV, $0.45, flat)
Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Return: 0%
Stop: None
Action: Continue to hold.
Potash (POT, $96.64, up $1.46)
September 110 calls (PYPIB, $1.40, up $0.20)
Entry Price: $1.35 (8/20/09)
Exit Target: $2.10+
Return: 4%
Stop: 65 cents
Action: This was a trade recommended this morning before the bell and the options opened at $1.35. They have traded to a low of $1.30 so most of you should be in for under $1.40. I’d like to see Potash run to $100 so we could maybe get out before the weekend so let’s see where we are at on Friday.
Wells Fargo (WFC, $27.62, up $1.01)
September 26 puts (FHUUZ, $0.75, down $0.35)
Entry Price: $1.30 (8/11/09)
Exit Target: $2.60
Return: -30%
Stop: $1
Action: The $1 stop was hit this morning so this trade is also closed. I thought Wells Fargo would be offering more stock this week or last week and although this position was profitable for a minute, it ended up succumbing to the bulls.
Note: 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 (IKJII, $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. I’ll be back with an update tonight.
Rick@MomentumOptionsTrading.com
Tags: AIG, anf, bac, c, hd, Imax, options trading strategies, POT, wfc
Posted in Financial Stocks, Market Analysis, Market Commentary, Option Trades, Strategies, Trading Tips | No Comments »