Quick Position Update

I was pretty happy with the way TransOcean (RIG) had broken out of a base and was headed higher.  Then the stock pulled back (I didn't realize why until yesterday).  Apparently the drilling rig that blew up in the Gulf of Mexico of the Louisiana coast was owned and operated by RIG.  So my position went from a nice comfortable profit to a loss in less than a week.  It is my fault for not being able to keep an eye on it and trying to figure out why the stock was headed down.  Goes to show that unexpected events can deal a blow to your portfolio (or deliver a windfall).  I did sell the stock yesterday once I realized that RIG was being sued by the families of the workers that may have perished in the explosion.  I also was afraid of more lawsuits to follow due to the still expanding oil slick that is headed to the Louisiana Coast.  I don't know whether RIG would be liable or whether it would be BP, but why take the risk.

EK earnings apparently disappointed and the stock is headed down.  I'll have to decide on pure technical merits whether to hold on to the stock.  At this point, it still has not reentered the base. 

ETFC took a sharp downturn once a secondary offering was announced.  There goes that nice formation that was looking promising.  This down move probably took a large bite out of my portfolio today since I have a large quantity of ETFC stock (compared to other holdings in my account).

Other stocks (and the market) are showing positive momentum at this time.

Citigroup - Gamble of the year or sucker's bet?

Sigh - Citigroup is a crazy stock at the moment.  You can buy Dec $5 calls on this stock for around 0.66.  Small money at risk and potentially a lot of money to be made if it takes off.  Let's take a closer look and see what is going on here.

Nice looking daily chart, but there is no handle to the cup at this time.  I would expect a handle to form here at the least before a breakout.  But to top it off, there are 750,000+ calls sitting at the May 5 spot.  Yes folks, you read it right - 750,000+ calls controlling a total of 75,000,000 shares.  Add to that the fact that the smart folks in the government are unloading their stock position when they get a good price and trickling in the supply rather than dumping it all at the same time, and you end up with a serious overhead resistance at the $5.00 mark.    Now there are also over 250,000 put contracts sitting at the May $5 spot which lend a support. 

I am not sure what I will do, but I will watch this and if it drops down towards the $4 point, maybe I'll pick up some call options.  But let me be clear.  This is not investing.  This is simple and pure gambling.  If you have some money to lose, you can take a shot if the stock pulls back, but don't complain if you lose it all. (But it does break out and makes a run, it could go anywhere from 7.50 to 21.  And a scramble to cover those 100s of thousands of calls could make the rally fast and furious).

Friday Position Update - 04/23/2010

Just a quick update.  I decided to close out the BCSI - May 30th calls at 5.30 this afternoon.  The stock spiked soon after and my order executed.   I did it because the value of the options had exceeded more than 50% of my portfolio.  I still own and am holding on to the May 35 calls with a GTC order to sell at 4.0 for that position (since I think the stock is headed to 39).

I also opened a new position in AMD July 10 calls at 0.66 cents per share.  Let's hope there is something to the Apple / AMD cpu licensing rumor.

PS:  The chart for ETrade (ETFC) is looking pretty good.  Maybe we will see 2.40 this time around.

Thursday update - 04/22/2010

Wouldn't you know it.  As soon as I loaded up on BCSI, it turned around and started heading down.  After two days of fighting my urge to sell it, it looks like it has shaken out some weak investors and we might be headed up again.  Had a great day in the market. Made money in BCSI, MLNX (almost a 100% gain - with my prediction of more to come - although I might sell tomorrow if I get another nice jump) and the big gainer of the day was Chipotle Mexican Grill (CMG).  I almost bought some options in it before earnings but didn't want to commit so much money to options.  The stock jumped 17+ dollars today.   As I mentioned earlier, AMD is worth watching.  I almost bought the May $10 calls this morning for 0.28 but didn't.  By the end of the day, those options were hovering around 0.40.   There is a buildup of calls that is happening at the $10 mark (potential resistance), but if it breaks thru, we could have a covering rally.  Some website (Motley Fool) also surfaced a rumor about AMD executives visiting Apple offices for some kind of CPU deal.  AMD already provides high end graphic chips for the Apples (thru the ATI acquisition).  If that does get announced that would be a BIG deal for AMD.  Which brings up the question of what maturity options shall be purchased?  Since I think the market is going to peak (in general) in May, its hard for me to recommend or buy the July calls but those seem to be the best target for letting the stock run to 14 or 15.  I don't see why AMD can't achieve that target unless the market peaks and holds the stock back.  Both daily and weekly charts show nice cups with handle.  The stock tried to break thru (and did) about a week ago, but fell back into the base.  Looks like its going to try again.

Let me reiterate, that a market peak in May does not necessarily signal the end of the bull market, but a sideways market could begin (with 10-20% pullbacks).  Time is the ultimate enemy of the options if you buy them at the wrong time. 

Position Update - Added to BCSI

Yesterday, the market showed a lot of strength yet again.  It has shaken off the bad news and focused on all the good news we are seeing about the economy.  I couldn't resist and added to my position in BCSI.  I almost tripled my stock position and added some slightly out of the money calls for May 35.  My in the money calls are up quite a bit.  I was thinking about selling those and using the profits to fund the May 35 calls, but in the end I decided to let both of them run for a bit to see how things work out. 

I am starting to get a bit nervous about the MLNX calls I purchased.  Since they are also for May expiration, I will keep a closer eye on those and may get out if they don't start getting profitable soon. 

And I also tripled my position in Eastman Kodak (EK). 

Market Assessment

The volatility I was expecting on option expiration friday sure did show up, with the blame thrown on the Goldman Sachs fiasco.  Looking at the charts, it was encouraging to see the market close above 11,000.  I still think that we have a bit of a run left (3 more weeks?).  I lost a lot of the gains I had in BCSI, but the stock showed good strength and recovered its losses (just like the market).  The only reason I didn't close that position when I closed out my HD position was that the potential gains in BCSI are much much higher.  If it does run up to my target, the options can pay off huge.  I was right about not jumping back into ISRG.  It did fail as I expected once earnings were announced.   So the leaders are nearing exhaustion.  Good earnings should continue to roll in and drive the market up to the anticipated target (see older posts).  I am over 50% in cash now and continue to be cautious.  I will post if I see any other opportunities, but Monday is more of a wait and see for me (if I had to guess, we are probably going to see a further decline in some stocks before the trend resumes)..

Update Note:  keep an eye on AMD - nice cup and handle formation.  Fundamentals are strengthening.  It would be a buy if it breaks out soon with target of 14 in the near term.

I chickened out...

Man oh man.  Just near the close of the market, I chickened out and sold my remaining position in Home Depot.  With option expiration tomorrow, even though I wanted to hold onto my position, I decided to take the 300% gain.  The first half of the position was sold at about a 100% profit, so I averaged out to a 200% return for less than a week's worth of work.  It was hard not to sell and lock in profits.  If stock pulls back a little, I may re enter and take another position (option premiums and bid ask spreads have gone up though).

Market acted strong and finished in the positive for the day.  Let's see what happens tomorrow.  There might be some volatility as option positions are closed and stocks bought or sold that were used as a risk hedge.

Great time for making money in options if you time it right.  Not too much longer left in this leg of the rally.  But the earning season is starting and so far the earnings have been stellar.  With businesses cutting costs and not hiring, the earnings have been extremely nice so far.  Once the earning fever ebbs, reality will sink in and we will begin our market retraction.  But in the meantime, thar's gold to be found in 'em stocks....

Position Update

CSTR hit my preset sell order at the price of $37 and my position got closed out.
BCSI is going strong and both my stock and option positions are now profitable (over 50% on options).
I got a bit nervous and sold my ORBK position at 12.06 (had an initial target of 15).  The stock may still move up a lot, but its so thinly traded that it can be manipulated. I would hate to be on the wrong side of that move.
Trying to decide how long to let the HD option position run.  Remaining options are now at a 300% gain. And the stock is acting strong.  With market showing strong upward momentum, I think I am going to let it run a bit longer.  I am still planning on starting to cash out in a couple of weeks (on a case by case basis).

I am mad at myself for not getting back in the ISRG position when the hammer was spotted in the chart pattern. But I can't jump in now since with earnings coming in after close tomorrow, it would become a crap shoot with a huge move up or down.  Oh well, I guess I will have to do it some other time.

Oh, and I did open a new position in MLNX (Mellanox Tech) with May 25 Calls at an entry price of $1.50 per contract.  (It was moving up on high volume and they seem to be getting a lot of new business lately).  But my decision to enter was based on Technical analysis alone.  Hope to make a quick profit and exit soon.

Also, a reminder that this is options expiration week for April and April options execute or expire on Friday.

BCSI - Going Long

Tuesday morning (4/13/10) Update:   I opened a position on the May 30 in the money calls this morning.  On a side note, 1/2 of my position in Home Depot May 33 calls was closed out this morning for about a 100% gain.  I am going to let the remaining position ride for the next few weeks to see where it takes me.  Of course, if I see the stock stall, I might take profits since time decay will start eroding the option value in earnest soon.

Monday's post:
BCSI has been a pretty solid company on fundamentals. The weekly stock chart is looking pretty good.  We could have a nice run to 42 or 45 before long.  I am considering buying the in-the-money May $30 calls tomorrow around $3.00 (they will be $2.00 in the money).  I think they will be better than the out of money $35 calls.  Although the risk of losing a bit more money is higher.  I hope we get a small dip tomorrow morning when I can establish the position. The stock is starting to move up on increasing volume.

EK - HD update

Well, EK broke out of a nice base on HUGE volume.  It has run into minor resistance at 7.50.  Once it overcomes that resistance, next stop should be around 13-15 dollars before long.  If they surprise again on the earnings front again, watch out.  This could be a nice doubler in stock or a several hundred percenter in options if it continues to shine.  I doubled my position in this on Thursday.  What a nice cup and handle formation and breakout on highest volume in the last year. Save this picture folks, this is a superb example of a classic cup and handle formation (and this handle did not dip much).  Earnings are scheduled to be announced on April 29, 2010

Home Depot (HD) is performing as expected so far.  The HD May 33 calls are already up to 1.03 bid - 1.05 ask for a nice return.  Hope to hit my sell order on 1/2 my position at 1.30 in a day or two.  Then wait to see if my price target of 38 is hit.

CSTR.  Heard a rumor that they might be considering entering the on-line video market (competing with NetFlix).  I have a lot of respect for NetFlix and not sure if CSTR can pull it off.  But the CoinStar management has been doing a very good job so far of executing so I would watch it closely.  In the meantime, I will keep an eye on the stock and see where it goes.  It is almost to the point where I said I would take profits, but let's see if I stick to the plan (greed vs fear).

GLW - Is Corning (GLW) making a cup and handle formation or a double top.  Time will tell.  I sold out around 20 and now the stock is around 19.50 or so.  Keep a close eye on this.  They make the glass for a lot of tvs that are sold and have been on a hot run.  I would not be surprised to see this turn into a cup and handle formation.  If it breaks out, I will probably try to find a reasonably priced option on this stock.

Remember though that this market run could end in the next 3 weeks or so.  So whatever you do, you cannot ignore the market.  If options are used, majority of the money will be made or lost in the next 3 weeks.  It may not be worth it to buy anything longer term.  That way if you lose your money, your loses will be limited to a month's premium.  I will become either a 100% cash holder or an option seller in this summer.

Good luck and have some fun while making money with stocks.

New Position - May 33 Calls on Home Depot @ 0.66

Home Depot broke out of a nice base recently and has been showing quite a bit of strength.  I decided to take a chance on the May 33 calls (slightly out of the money).  The stock is in a nice flag pattern and has not shown much weakness even on down market days.  The only concern is the Call related option resistance at the 33 level.  But I figured if we get to 33 fairly soon, a 25-40 percent return is not out of the question.  I also put in a simultaneous order to sell 5 (out of the 10) contracts at 1.30 as a Good Till Cancel order.  Also, a May expiration date of May 21 gives the stock about 6 weeks to make its move.  It just felt like the price was right :-)

On a side note, EK is trying to move out of a base.  I was hoping it wouldn't do that until after the April expiration, but no such luck.  I might have to add to this position soon, as it looks like there can be a big move ahead.

Position Update - ISRG closed out on 4/5/2010

Sorry about the late post.  But on Monday, ISRG gapped up and proceeded to lose its gain rapidly.  By the time I got around to checking the stock price in the morning, it was down around $2.00 from the previous close.  Looking at the indicators on the weekly chart, I concluded that a pull back was imminent and proceeded to close out my position at a loss around 347.70 or so.  The stock has continued to struggle since then and is currently around 336.60.  I am expecting it to drop to around 320 but it is currently at a potential support level.  Indicators are still headed lower so I will wait and see if an opportunity presents itself to reestablish the position.
Earnings should be coming out soon.  So I would expect the stock to drop then rally before earnings.

Dow Jones Industrials Wave Analysis

Today, I'll attempt to evaluate the Dow Jones Industrials charts and see if I can determine what is going on with the market and how far it might be likely to run.  Applying the Elliott Wave theory:  After reviewing the charts , it appears as if the first wave started in March of 2009 and lasted for about 3 months before pulling back during wave 2.  Wave 3 then started in July 2009 and ran until Jan 2010 (6 months).  Wave 3 is generally longer than wave 1 and 5 so this supports the hypothesis.  Wave 5 (now in full swing) started in Feb 2010.  If it sticks to the pattern, Wave 5 should last thru April and end in May, when a market pull back starts.   It still shows the potential to continue the advance since it is still shorter in length than wave 1.  Maybe the conventional wisdom of "Sell in May and go away" will hold true this year.   That does not mean that the bull market that started in Mar 2009 will come to an end, but it does mean that it would not be a bad time to pull some chips off the table.  Selective money making opportunities will still exist, and if you hold onto your stocks, covered call strategies should continue to pay off during the summer months.  But after a protracted run like we have had, a pullback of 10 to 20% is not out of the question.  I have generally found that I would have been better off selling the stock and buying it back later than selling covered calls on it (meaning that the profits made from selling the covered calls were less than the decline in the price of the stocks held).  Of course, if you are trading in a tax advantaged account (self directed 401 k, IRA , etc) vs a taxable account, the type of transaction does make a difference since each individual's circumstances may vary.

Another interesting thing to notice is the diminished volume in the market (daily chart) as compared with a year ago.  So theoretically, in the next run (fall 2010), we can see a sharp run in the market accompanied with large volume that may take us to the previous highs.  Continued strength in the markets could then help us breakthru the resistance and into the era of new market highs.  But that is dependent on a lot of "ifs" and time will tell whether it comes to play out.  Looking at the monthly chart, it also appears that we are in the area of high resistance around the 11,250 - 11,400 area which also marks a 66% retraction point from the market bottom.  But that resistance may not exist given that it was almost 10 years ago when that point was established. 

New Position Opened

Yesterday I added a new position in RIG and closed out a position in GLW (Corning).  It appears that I was a bit too early to pull the trigger and sell GLW since it has continued to move up.  I just wanted to lock in the profits and plan to reenter the position upon pullback.  GLW is about to complete a Cup formation.  I am hoping to get back in for the handle pullback if the market holds. RIG has been forming a nice base for a while and started moving up upon yesterday's announcement of the govt's plan to allow off shore drilling on the East Coast.  RIG operates and rents out oil drilling rigs and would probably benefits from this development.  In the short run, however, it could just be limited to a run up in stock price on the news.  So far I am showing a gain of around 3% in a day.  I hope it will extend its run and am targeting a first resistance test at 95.  If it breaks thru that resistance level then it could easily test the 130 level.  Of course, a lot of it can depend on the movement in oil prices (which do tend to move up around summer time).  So this may be a stock that moves up while the rest of the market takes a breather.   This is one of my big misses from a while back.  I bought it around 19, sat on it for almost year or so while it didn't do much and then sold it for a small profit.  Of course, that is when the stock took off and never looked back and ended up around 140+.  Let's see if I can get some of those gains this time.