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
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Potash (POT) Pops on Takeover Bid, August Call Options Up 7,650%
Tuesday, August 17th, 2010
1:20pm (EST)
The bulls are trying to run today and have taken the market higher despite a downbeat report on housing. Other economic news has helped take the spotlight off the sector and merger and acquisition (M&A) news is also keeping the bears at arm’s length.
The market also got some decent earnings from Wal-Mart Stores (WMT, $51.37, up $0.96) and Home Depot (HD, $28.65, up $1.27) which has also put Wall Street in a buying mood.
Housing starts for July increased 1.7% month-over-month to 546,000 units, but was less than the 555,000 units analysts had been expecting. Building permits for July fell 3.1% to 565,000 and below the 573,000 number that had been penciled in.
The Labor Department reported the Producer Price Index for July showed a 0.2% monthly increase, as expected, and was the first increase since March. Excluding food and energy costs, the index rose 0.3% in July.
And finally, Industrial production jumped 1% in July, which was double the 0.5% growth forecast prediction.
Now to the good stuff…
In M&A news, Potash (POT, $140.45, up $28.30) rejected an unsolicited takeover proposal from BHP Billiton (BHP, $70.45, down $1.49) this morning and its shares are on fire. The company said the $130-a-share bid from BHP was not enough and that its bid was “grossly inadequate”.
This is always the normal, first reaction from a company and its board members when they get a takeover bid. At $130 a share, the offer by BHP represented only a 15% premium over Potash’s closing price on Monday so it was kind of a slap in the face. We have been following Potash for years and as matter of fact, we recently had some call option listed on them last week.
For those of you who haven’t been inside our Members Area, in addition to trade recommendations, we also have a Watch List where we focus on stocks and options that are about to breakout or breakdown. Sometimes we are waiting for a certain price to trigger point before we initiate the trade as we are waiting for a move below support or resistance. Other times, we list stocks and options on sectors that are on the move.
We listed the Potash August 120 calls (POT100821C00120000, $21.00, up $20.70) last Tuesday in our Members Area and at the time the options were going for 95 cents. Since the market was in a downdraft last week, it didn’t make sense to purchase these cheap out-of-the-money options since 70% of stocks move overall that the direction the market is going. As you can see though, the August call options have zoomed to the moon today and are up over 7,650% after closing at 30 cents yesterday!
We were also going to list the Potash September 120 calls (POT100918C00120000, $20.60, up $18.20) as a possible play and they have surged nearly 760%.
Of course, we can’t take credit for these being official trades but we did have some subscribers who did their homework and used our Watch List to their advantage.
Here was an email from this morning:
“Once again, thank you!
I trade POT almost every option expiration and had 20 options this morning. Just cashed in for $47.7K.
Thanks for adding it to your watch list.
Scott H.”
As we head to press, the Dow is showing a gain of 137 points, or 1.3%, and is at 10,439. The index has broken through slight resistance at 10,400 and has hit a high of 10,450 today.
The S&P 500 is higher by 16 points to 1,095, or 1.5%, but is once again fighting the 1,100 level while the Nasdaq is up 33 points to 2,215. Tech has busted out past the 2,200 level and it wil be interesting to see if it holds.
We were thisclose to bagging a big option trade but we are on the cusp of breaking through with others, we can feel it. The market has been choppy but we are still finding sectors and stocks that are hot or about to drop.
In fact, we have a couple of current trades that are on our Watch List that look ready to pop and we are releasing one of them today! Subscribers, check the members Area for the NEW TRADE!
Tags: BHP, hd, option picks, POT, Potash takeover bid, stock options trading, WMT
Posted in Company Commentary, Mergers and Acquisitions, Watch Lists | Comments Off