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12:25pm (EST)
The bulls are trying to push their winning streak to 3-straight sessions as they have the lead heading into the second half of trading. The market got some better-than-expected economic news and earnings have also been positive which has kept the bears at arm’s length.
After a slow start, the Dow is up 47 points to 12,731 while the S&P 500 is showing an advance of 6 points to 1,352 as the bulls look to close above this level today. The Nasdaq is gaining 16 points and is at 2,859.
In earnings news, Fossil (FOSL, $105.72, up $11.72) is up 12% after smashing Wall Street’s estimates. The company reported earnings of $55.8 million, or $0.86 a share, versus $35.9 million, or $0.53 a share, in the year ago period. Revenue was up over 35% to $537 million. Analysts were looking for earnings of $0.66 a share on revenue of $512 million. Shares of Fossil are at all-time highs.
We highlighted Fossil’s earnings in our Weekly Wrap as one of the stocks that could move 10% this week. Shares closed at $94 yesterday and a 10% move would have put the stock over $100, or under $85. Bingo. For traders that like to play earnings, the Fossil May 100 calls (FOSL110521C00100000, $7.00, up $5.50) were trading at $1.50 going into yesterday’s close and are up 365%.
As a strangle option trade, you could have bought both the May 100 calls and the Fossil May 90 puts (FOSL110521P00090000, $0.10, down $2.10) for about $3.70 and still made money. Although the puts will probably expire worthless, the trade would have made 90% overall.
Strangle trades are also known as “chicken trades” because you are unsure on what direction the stock might move. However, if you feel shares of a company could move 10% on an earnings announcement then these types of trades can pay off if the premiums aren’t too high. Of course, they won’t make as much as a directional trade but it gives you the luxury of being “wrong” on which way shares might move.
We show you step-by-step how to do these types of trades and how to play earnings in our option trading manual, How to Trade options on Momentum Stocks. The trading manual has been a big hit with our subscribers and we added the Weekly Wrap to compliment the course. We are working on our next video for trading course which should be ready in the next week or two.
We are going to show you how to play commodities with stocks and options that are directly tied to their movements. In other words, if you think beef prices are going lower, we are going to show you which stock or ETF you could use to take advantage or a move down. If you think silver is going back up, then we will show you how to play it. To read more about our option trading course, click here.
We have a lot of new subscribers and we have been getting requests to run our special promotion which allows you to get this course and our ongoing monthly videos at no charge. The course retails for $899 but we have been including it with all one-year subscriptions to our Daily newsletter or Weekly Wrap for free. Folks, this is one of the best written courses on how to trade options and we show you step-by-step on how to find your own trades while you learn with us.
If you would like more information on how to take advantage of this special offer before our next video comes out, please email us. Or, just sign up for a 1-year membership and we will ship your course (also at no charge) to you as soon as we get your order.
We have a lot to cover in our Members Area today so we have to leave it there. Subscribers, check for the updates. We will be back Wednesday morning with the latest and greatest.
Will the Fed Fire-Up the Economy?
Tuesday, August 10th, 2010
1:10pm (EST)
The bulls were behind the 8-ball before the opening bell sounded as economic data out of China revealed imports slowed significantly in the latest period due to declining demand and a tightening of monetary policies.
The news pushed futures significantly below fair value which led to a nasty open. The bears have done a good job of holding resistance levels, and, perhaps yesterday was another “head fake”. We have mentioned in the past that resistance (and support) levels can sometimes be “stretched” and that could be the case again today with the Dow down nearly triple-digits ahead of today’s big Fed announcement.
Although we have been trading “light” in recent weeks, we still believe that the market will continue to experience some wild and volatile price swings in the coming months which will present better opportunities to trade.
We have slowly been positioning ourselves in some bearish trades during the recent market rally over the past few weeks and these trades are on the move today. Sometimes it is hard to buy puts in a rising market just like it is hard to buy calls in a declining market but this is how you set your trades up for triple-digits returns. You may not always get the best entry price but the key is to recognize the trend before others do.
The Dow is currently trading at 10,609, down 90 points. The S&P 500 is off by 12 points and is at 1,115 while the Nasdaq is lower by 35 points to 2,270.
Of course, all eyes will be on the Fed and there is a chance for major move in the market once their announcement is released. We talked about the Fed’s options this morning and given today’s mini sell-off, the bulls are looking for a life jacket. However, if the Fed doesn’t appear it is going to come to the economic rescue then the bulls will be sinking with today’s ship.
As far as specific stocks, there are a few companies trading higher in an otherwise sea of red. One of our favorites, Netflix (NFLX, $124.43, up $7.53) is challenging its 52-week high of $127.96, which was set in mid-June, after announcing a deal with Epix that will expand Netflix’s library of movie titles.
Fossil (FOSL, $45.50, up $3.03) is up 7% after beating Wall Street’s earnings estimates. The company announced a profit of $55 million, or $0.80 a share, versus $17 million, or $0.25 a share, in the year ago quarter. Revenue jumped nearly 30% to $417 million for the quarter, compared to $316 million, in last year’s period.
The Fossil August 45 call options (FOSL100821C00045000, $1.45, up $0.75) are up over 100%.
We are getting aggressive with an earnings trade of our own TODAY as we have been eyeballing a company that will report earnings on Friday. These are cheap out-of-the-money options with the same type of potential as the Fossil call options just mentioned. Subscribers, check the Members Area for today’s NEW TRADE!
Tags: call options, FOSL, Fossil, how to trade options, momentum options trading, Momentum stocks, Netflix, NFLX, option picks, option stock picks, options alerts, options newsletter, options track record, put options, stock options trading, volatile options
Posted in Company Commentary, Earnings, Market Analysis, Market Commentary | Comments Off