9:05am (EST)
The market managed to edge out a slight gain yesterday after spending most of the session in the red. Things changed after the Federal Open Market Committee (FOMC) announced to keep interest rates at their current levels for an extended period of time. The bulls liked the news and the market started moving higher gaining momentum into the close.
The Dow finished the day with a 43 point win and closed at 10,236. The S&P 500 closed with an increase of 5 points and settled at 1,095 while the Nasdaq tacked on 17 points and stands at 2,221. All three indexes are holding key support levels and we have mentioned all week that we expected the market to go up on Thursday and Friday.
Of course, it is an “educated guess” on our part but we know the bulls like to end January on a positive note because it often sets the tone for the entire year of trading. The theory goes that whatever the Dow does in January usually translates either a gain or a loss for the year.
We mentioned yesterday the bulls needed 200 points to get back to even on the year for the Dow and that movement started right after the Fed announcement.
Watch the Education stocks. Obama is pushing for a $10,000 college tax credit and a 20-year student debt relief program. We often mention Apollo Group (APOL, $64.15, up $2.27) in a negative light and our favorite way to play the stock is usually with put options. Shares touched a low of $53 in December after another investigation was planned and dropped and a lawsuit was settled.
We aren’t ready to play this one yet but there will be a trade down the road with this one again.
One stock that should see a HUGE open this morning is Netflix (NFLX, $50.97, up $1.02) which was up $9 in after-hours last night and was kissing $60. Folks, we love this company and should have known history might repeat itself.
Every weekend, we look for trades and find about 10 or 15 trades that look like possible candidates. Out of them, we try to find one or two trades a week that look like the best ones and when we were doing the Weekly Wrap we wrote down some Netflix put and call options. These quotes are from Friday’s close but here were our thoughts:
“Watch Netflix this week, stock has been in a downtrend but the company has its fingers in a lot of pies. They announce earnings Wednesday. February 55 calls (QNQBK, $1.40) and February 45 puts (QNQNI, $1.00).”
This is known as a strangle trade and they are easy to do. We don’t recommend these kinds of trades because most options traders can’t understand the concept. Basically it means you are hoping for a BIG price move in the stock so that one side offsets the other side. Yesterday in our 1pm update we said the market was pricing in a 10% move for the stock. Folks, we got a 20% move if it holds and here is what how this trade works.
If you would have bought 10 contracts of each position it would have cost $2,400. Or, if you would have bought just one contract of each option on Monday morning then it would have been $240.
Now, if Netflix opens at $60 the Feb 55 call options will be worth at least $5 because they are that much “in-the-money”. The Feb 45 put options will probably fall to a “bid” of zero with an “ask” of 5 cents. In other words worthless. However, if you can sell the calls for $5 then you have doubled your money. Your $2,400 is now at $5,000 or your $240 is now at $500.
Of course, there was risk in this trade but at this exact time last year we recommended some Netflix March call options that returned our readers 50% and 100%, respectively. We tried again in November because we really felt like the stock was going to $80. Then the downgrades came.
Wall Street is a game and we do a lot of research here. Out point is our trading manual is almost ready and we talk about straddles and strangles trades because they are not that hard to do. Given the current market conditions, we may have to start using them. Our website says, “nothing fancy, just simple calls and puts” but again, these trades are just like buying a call or put option only you are buying both.
If the demand is there, we will start offering these trades as part of our service at no extra charge. Please send a simple “yes” or “no” in the subject line if you would like us to cover more of these trades to our support team.
The Members Area is also packed full of information today so we want to get our current subscribers in there before the opening bell. As we head to press, the rally we have been counting on could come to fruition…Dow futures are up 26 while the S&P 500 futures are up 3. Nasdaq futures are lower by 3 points.
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Netflix Goes Global
Thursday, January 28th, 2010
9:05am (EST)
The market managed to edge out a slight gain yesterday after spending most of the session in the red. Things changed after the Federal Open Market Committee (FOMC) announced to keep interest rates at their current levels for an extended period of time. The bulls liked the news and the market started moving higher gaining momentum into the close.
The Dow finished the day with a 43 point win and closed at 10,236. The S&P 500 closed with an increase of 5 points and settled at 1,095 while the Nasdaq tacked on 17 points and stands at 2,221. All three indexes are holding key support levels and we have mentioned all week that we expected the market to go up on Thursday and Friday.
Of course, it is an “educated guess” on our part but we know the bulls like to end January on a positive note because it often sets the tone for the entire year of trading. The theory goes that whatever the Dow does in January usually translates either a gain or a loss for the year.
We mentioned yesterday the bulls needed 200 points to get back to even on the year for the Dow and that movement started right after the Fed announcement.
Watch the Education stocks. Obama is pushing for a $10,000 college tax credit and a 20-year student debt relief program. We often mention Apollo Group (APOL, $64.15, up $2.27) in a negative light and our favorite way to play the stock is usually with put options. Shares touched a low of $53 in December after another investigation was planned and dropped and a lawsuit was settled.
We aren’t ready to play this one yet but there will be a trade down the road with this one again.
One stock that should see a HUGE open this morning is Netflix (NFLX, $50.97, up $1.02) which was up $9 in after-hours last night and was kissing $60. Folks, we love this company and should have known history might repeat itself.
Every weekend, we look for trades and find about 10 or 15 trades that look like possible candidates. Out of them, we try to find one or two trades a week that look like the best ones and when we were doing the Weekly Wrap we wrote down some Netflix put and call options. These quotes are from Friday’s close but here were our thoughts:
“Watch Netflix this week, stock has been in a downtrend but the company has its fingers in a lot of pies. They announce earnings Wednesday. February 55 calls (QNQBK, $1.40) and February 45 puts (QNQNI, $1.00).”
This is known as a strangle trade and they are easy to do. We don’t recommend these kinds of trades because most options traders can’t understand the concept. Basically it means you are hoping for a BIG price move in the stock so that one side offsets the other side. Yesterday in our 1pm update we said the market was pricing in a 10% move for the stock. Folks, we got a 20% move if it holds and here is what how this trade works.
If you would have bought 10 contracts of each position it would have cost $2,400. Or, if you would have bought just one contract of each option on Monday morning then it would have been $240.
Now, if Netflix opens at $60 the Feb 55 call options will be worth at least $5 because they are that much “in-the-money”. The Feb 45 put options will probably fall to a “bid” of zero with an “ask” of 5 cents. In other words worthless. However, if you can sell the calls for $5 then you have doubled your money. Your $2,400 is now at $5,000 or your $240 is now at $500.
Of course, there was risk in this trade but at this exact time last year we recommended some Netflix March call options that returned our readers 50% and 100%, respectively. We tried again in November because we really felt like the stock was going to $80. Then the downgrades came.
Wall Street is a game and we do a lot of research here. Out point is our trading manual is almost ready and we talk about straddles and strangles trades because they are not that hard to do. Given the current market conditions, we may have to start using them. Our website says, “nothing fancy, just simple calls and puts” but again, these trades are just like buying a call or put option only you are buying both.
If the demand is there, we will start offering these trades as part of our service at no extra charge. Please send a simple “yes” or “no” in the subject line if you would like us to cover more of these trades to our support team.
The Members Area is also packed full of information today so we want to get our current subscribers in there before the opening bell. As we head to press, the rally we have been counting on could come to fruition…Dow futures are up 26 while the S&P 500 futures are up 3. Nasdaq futures are lower by 3 points.
Tags: Netflix strangle option trade, option picks, option signals, options alerts, stock options trading
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