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1:10pm (EST)
The bulls got a bevy of good news before the bell this morning which led to a good start for the market as the major averages continue to push the July 2011 highs. Bank of America (BAC, $7.11, up $0.31) is giving the Financial stocks a lift after beating Wall Street’s revenue expectations. The suit-and-ties were floored when the company posted a profit of 15 cents a share on revenue of $25.1 billion which beat their projection of $24 billion in revenues. We have been pounding the table on the stock when shares were at $5 back in December as it is a current member of our Weekly Wrap Covered Call portfolio which could start January at 10-0.
Economic news was fantastic as Initial Claims fell to 352,000 versus expectations for 384,000 while Continuing Claims were 3.43 million versus forecasts for 3.6 million. Elsewhere, Consumer Prices were unchanged which was below calls for an increase of 0.1%. The core reading, excluding food and energy, matched the hype and was up 0.1%. And finally, from the crib, Housing Starts dropped for the month of December, coming in at 657,000 versus expectations for 680,000 while Building Permits matched forecasts.
Google (GOOG, $636.00, up $3.09) will confess their quarterly numbers after the bell and shares have a history of making huge moves after they announce earnings. Of course, this is option expiration week and the January options are still in play so let’s take a look at the stock and some of the options.
The last time the company reported their quarterly results (mid-October 2011), shares surged $32-and change from $559 to $591, on better-than-expected numbers. The high that day was $599. In July 2011, Google also beat estimates and zoomed from $529 to $597 and kissed a high of $600.
A 10% move in Google would equate to a 63-point move in the stock and we could see that on an earnings miss to the downside. However, the upside may not be quite as huge if it is not a blowout quarter and could only be 5% or less which is still $30 but is it enough to create a possible strangle option trade?
The Google January 700 calls (GOOG120121C00700000, $1.10, down $0.20) and the January 575 puts (GOOG120121P00575000, $0.90, down $0.70) would cost $2 together and are a possibility but the stock would need to be at $702 or $573 for us to break even. At $704, or $571, the trade would double but again, the options expire tomorrow.
This is NOT an official option trade recommendation but we wanted to show you how strangle option trades work since we have a ton of new subscribers. The risk/ reward on this trade doesn’t look great and it may be better off to SELL these options but that is another strategy altogether and one we certainly don’t recommend on a $600+ stock.
We will take a look at these options again on Friday to see where they are at and we would like to see a blowout quarter which would help the Tech sector keep its momentum.
As we head to press, the Dow is up 14 points to 12,593 while the S&P 500 is higher by 5 points to 1,313. The Nasdaq is showing a pop of 20 points to 2,790.
As usual, we have a number of open trades and there is a lot to talk about so let’s go see where we are at. Microsoft and IBM and Intel also report after the bell so tomorrow could be explosive for either the bulls or bears depending how things go. Subscribers, check the Members Area for the updates.
Moody’s (MCO) Takes The Chair
Wednesday, June 2nd, 2010
12:50pm (EST)
Momentum.
We often hear the word in sports, sometimes in gambling, and maybe in war.
When it comes to the stock market, we talk about it all the time on our website because it is important to know which side has it. If you are a bull then you want to the market to rise and you tend to favor call options on stocks. If you are a bear then you are hoping the market will trend lower and you favor buying put options. (We are both bullish and bearish at times).
It is not a big secret but knowing which way the market is headed and knowing which side has momentum is crucial in determining if you should buy call or put options. It is hard to make money when the market is setting new highs and you have a rack of put options in your account. Same thing if the market is headed down and you own call options.
Since options are time sensitive you have to look forward in your trading and try to figure out where the market will be by the time the options you are looking at are set to expire. You also have to give yourself enough time for the trade to work in your favor… (END)
We thought we would take a little time this afternoon to talk about the release of our upcoming trading manual, How to Trade Options on Momentum Stocks.
Folks, we are excited as ever to be finally talking about the upcoming release and we thought we would provide a little preview in what’s inside.
A heads-up for you newbie’s. With June options expiring in 16 days we wanted to warn new option traders these are not the best options to buy right now. Yes, the returns will be fatter than the July options if you are right about your picks but going out to the July options will buy you time and insurance.
As far as the market, it looks like the bulls are making their rally cry that we talked about in the Weekly Wrap on Monday. We have been expecting one last push and we are hoping this is it. Timing the market is never an easy thing to do but without risk there is no reward.
The Dow is currently up 117 points, or 1.2%, to 10,140 while the S&P 500 is higher by 15 points, or 1.4%, to 1,085. The Nasdaq is enjoying a 32 point pop, or 1.4%, and was last seen at 2,253.
Mr. Buffett and Moody’s (MCO, $19.83, up $0.53) bigwigs are on the hill testifying in front of the Financial Crisis Inquiry Commission (FCIC) as we go to press. The suit-and-ties are trying to get to the bottom of what role or non-role the rating agencies played in the meltdown from the housing bubble.
Hello. We have been bashing Moody’s for years. The stock might be up 3% today but we think this one is heading to new 52-week lows which will happen once $18.50 falls.
We see today’s bounce as a great opportunity to add 2 more NEW TRADES. We are posting a little early because we like the current prices the options are trading at. Subscribers, check the Members Area for the updates.
Tags: FCIC, Financial Crisis Inquiry Commission, MCO, Momentum stocks, stock option picks
Posted in Company Commentary, Market Analysis, Market Commentary, Trading Psychology | Comments Off