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Thursday, February 26th, 2009
Not much has been happening with AutoZone (AZO, $141.08, down $2.80) since I profiled the stock on Tuesday. The March 160 calls (AZOCL, $1.50, down $1.50) were at $2.30 and the March 130 puts (AZOOF, $3.80, down $0.80) were at $3.90.
My initial hopes were that the stock would have fallen to below $140 this week which would have made the puts options worth $6-$6.50. That would have allowed us to sell the puts for enough of a profit that it would have left us with a free call option on the stock going into earnings.
AutoZone hit a low of $140.72 today, so we will see…
Bank Of America (BAC, $5.32, up $0.16) has had a heck of a week as banks have been rallying. The March 6 calls (BYOCF, $0.50, up $0.14) and the March 7 calls (BYOCG, $0.30, up $0.05) were profiled on 2/12 at 90 and 60 cents.
The March 6 calls traded to a high of 80 cents and the March 7 call options traded to a high of 45 cents. This represented a loss of 10% and 33%.
It looks like I was a week early on the recommendations and maybe they should have been sold today for a small loss. Remember what I have been telling you. If you can limit your losses to 25%-50% on options trades while making 100% then you will do fine. I don’t mind taking a small loss on the trades and will probably close them on Friday. There are better opportunities out there for us to make some money.
I mentioned the International Business Machines (IBM, $88.97, up $3.07) March 95 calls (IBMCS, $1.10, up $0.60) this morning at 70 cents. As I was doing the blog, IBM came out with “breaking news” and the stock started to rally after the company said it was on track with its 2009 numbers.
The call options immediately started to trade higher and ran to a high of $1.40. Obviously, that was good for a 100% return. I realize many of you can’t follow the market minute by minute and I’m looking at an alert service to inform you of the blog postings. If you are interested, send me an email and any thoughts you might have.
The call options are still up 50% and IBM looks pretty strong in a weak market.
We closed the Safeway (SWY, $18.37, down $2.75) trade this morning. The March 20 puts (SWYOD, $1.95, up $1.25) were profiled at 70 cents on Wednesday and you could have bought them before the market closed at 65 cents. I said to sell them this morning at $1.80 and yes, they finished higher but after hitting a high of $1.90, the puts traded back to $1.40. That was the difference between 150% and a 100% trade.
The put options still closed higher than where we sold them at but our trade parameters were already meet. New options traders will hold onto these positions instead of taking what the market gives them. That is the main reason between having winning and losing option trades. Safeway could continue lower but when our goals are meet, ring the register and move on to the next trade.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone, Bank of America, IBM, Safeway
Posted in Option Trades, Stock Earnings, Strategies, Uncategorized | No Comments »
Tuesday, February 24th, 2009
AutoZone (AZO, $143.60, up $1.72) continues to defy critics as its stock races towards fresh 52-week highs. On Monday, the stock hit a high of $148.50 on a day the Dow tanked 250 points. I know people are holding off buying new cars but is AutoZone’s benefiting that much?
We were pretty successful in an AutoZone put option trade before earnings a little over three months ago. We rode the stock down on November 19 when it was at $100, all the way to $85 a few days later. The December 75 puts that were profiled went from $1.80 to over $6.00.
Since then, the stock has added 60 points.
The company announces earnings on March 3 and I would hate to step in from of a train with the stock making news highs. So what do we do?
Well, it’s all but certain AutoZone is going to make a huge move between now and then. Specifically, the stock could move $15 or move after announcing earnings. That is based on a 10% move in the stock either way. If those assumptions come true, that would leave the stock at $160 or $130.
The March 160 calls (AZOCL, $2.30, up $0.30) are up 15% today while the March 130 puts (AZOOF, $3.90, down $0.40) are down about 10%. If you bought both of these positions it would be considered a straddle option trade.
This is usually a good strategy if you expect a large movement in the price of a stock, but don’t know whether the price will go up or down. With the release of AutoZone’s quarterly results next week, I’m pretty sure we get at least a 10% swing.
Since we are buying options, this long straddle (short straddles are when you sell options), will profit no matter which way the price of the stock moves, providing the stock moves 10% or move. If the price of the stock goes up, the call options should double and we would take a loss on the put option. If the stock goes down, the put option should do well while the call option would suffer.
As you can see, the puts are more expensive than the calls based on “15 strike” move from where the stock is currently at. The beauty of the long stradle trade is that you can possibly make money on the way up and then make money on the way back down or vice versa. These type of plays have worked well in the past for us and I don’t see why this one won’t. There may be an opportunity to play AutoZone straight up after I get a better feel for where the stock is headed but for now, this is the safer way to play the trade.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone
Posted in Option Trades | No Comments »
Tuesday, January 13th, 2009
We are out of the AutoZone (AZO, $129.16, up $0.39) trade. The stock managed to close below $130 and stayed in positive territory for most of the day. Shares hit a high of $131 which triggered our stop of $3.30 for the February 115 puts (AZONC, $3.30, down $0.10). The puts did trade to a high of $3.90 on Monday which was just 10 cents away from our exit target.
Sometimes no matter how well you plan a trade you may miss your initial exit target, and in turn, you may give back some gains. It happens. The trade still netted 10% and could go on to do very well. But one of the number one rules in this business is to stick to your trading plan and our stop was hit.
As far as the HSBC Holdings (HBC, $45.85, down $0.85) trades…
After the bell, there were a couple of analysts from Morgan Stanley that said HSBC may have to raise $30 billion and slash its dividend in half. They also said that they didn’t see a recovery in earnings until 2011 at the earliest. Morgan Stanley slashed its 2008 earnings estimates for HSBC to $0.90 a share, down from $1.08 per share, and 2009 estimates as well, to $0.55 from $0.90 cents. For 2010, they brought down estimates to $0.50 from $0.73. There you have it.
HSBC was down another 50 cents in after-hours trading to $45.35. Could this could be the staw that breaks the camel’s back? As far as the stock goes that is. I don’t believe HSBC is in any danger of bankruptcy or that the company will be closing shop anytime soon but I do believe the negative news could impact the shares. We will have to see how it plays out on Wednesday but the stock has a 52-week low of $44.59.
The February 45 puts (HBCNI, $3.20, up $0.45) could have been picked up today at $2.85 and traded to a high of $3.50.
The March put options were again active and there was buying and selling all the way down to the 25 and 30 strike prices. The March 25 puts (HBCOE, $0.85, up $0.20) traded 25,000 contracts…
We are more interested in the 35,40, and 45 puts.
The March 45 puts (HBCOI, $5.10, up $0.50) could have been purchased at $4.75 and the March 40 puts (HBCOH, $3.40, up $0.85) traded at $2.80 shortly after the open. The March 35 puts (HBCOG, $2.15, up $0.65) traded in a range of $1.70-$2.25.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone, HSBC Holdings
Posted in Option Trades | No Comments »
Tuesday, January 13th, 2009
Genentech (DNA, $87.47, up $1.13) got off to a slow start on Monday but got it going in late afternoon trading. About the time Roche presented at the JPMorgan Healthcare Conference, Wall Street was bracing for some kind of comments concerning the news that Roche is about to make a bid for Genentech.
Although Roche did say a little something, it wasn’t enough to push the shares of Genentech higher than they were in after-hours trading on Friday when they hit $89. Roche did talk about not destroying the “synergies” that exist and it was actually a good thing the stock got off to a slow start because it enabled us to get into some call options at cheaper prices.
The February 95 calls (DWNBS, $0.95, unchanged) traded as low as 80 cents and as high as $1.15. The March 95 calls (DWNCS, $1.60, down $0.10) traded as low as $1.45. If you got into these positions, place stops 50% below your entry points. These are risky trades especially with Genentech announcing earnings on Thursday. Genentech’s CEO Art Levinson will be speaking today at 5:30 ET so the market will be closed once he takes the podium.
AutoZone (AZO, $128.77, down $4.29) broke down like a rented mule after failing to hold the $130 level. The February 115 puts (AZONC, $3.60, up $0.70) traded to a high of $3.90 which was just shy of $4.00-$4.50 target we have. Stops are set at $3.30 but raise it to $3.75 if the calls get over $4.
How Intuitive Surgical (ISRG, $100.75, down $1.05) managed not to break its 52-week low was a miracle. The stock had a strong opening and hit a high of nearly $106 before a late wave a afternoon selling brought the stock back down to Earth. The February 90 puts (AXQNR, $5.30, unchanged) were profiled at $4.50 on Friday and actually traded as low as $4.40 on Monday. However, the magnet of new lows is right around the corner and hopefully yesterday’s slide will continue into this morning’s trading.
And finally, Family Dollar (FDO, $28.11, up $0.61) bounced back and closed in positive territory. The February 30 calls (FDOBF, $1.05, up $0.15) were profiled at 75 cents and the $1.00-$1.25 target has technically already been hit. You could sell half, place stops
at 50 cents and see what happens from here on out.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone, Family Dollar, Genentech, Intuitive Surgical
Posted in Option Trades | No Comments »
Monday, January 12th, 2009
We left the AutoZone (AZO, $130.64, down $2.42) trade open over the weekend hoping to get a break below $130 which was achieved 30 minutes into today’s trading session. The stock got a downgrade from “Outperform” to “Market Perform” which has pushed the shares lower. I’m not really sure what “Market Perform” means but if Bernstein downgrades the stock and the market does extremely well, does that still mean it was a downgrade? I’m not sure where these research firms come up with their wording and you already know my two cents on analyst upgrades and downgrades.
In any event, the downgrade has helped our February 115 puts (AZONC, $3.60, up $0.70) which were entered at $3.00. We got the break below $130 which is what I was originally looking for but I thought we would get lower than $129. We may still get there but as I mentioned Sunday night, we are trading in a narrow range and we will look to take profits quicker than normal. You could set stops at $3.30 to protect profits but I think the puts can get to $4.00-$4.50 this week.
DryShips (DRYS, $16.70, up $0.12) may have peaked at $17.35 this morning as the stock appears to be headed into negative territory after a strong start. The January 15 calls (OOCAC, $2.20,up $0.10) have traded to a high of $2.55 and I said they could run to $3 if the stock could have made it to $18. The calls got to $2.55 before fading.
First Solar (FSLR, $159.04, down $3.50) looks weak and the January 175 calls (HJQAO, $1.90, down $0.60) could be headed for a rough day if there is no turn-around in the stock. I had warned of the dangers of chasing DryShips and First Solar higher especially with the January options but the action in both stocks will still attract option players.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone, DryShips, First Solar
Posted in Option Trades | No Comments »
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