YUM Strangle

YUM will be reporting earnings on Oct 6.  The Oct 47 calls are around 0.81 and the Oct 45 puts are around 51 cents for a total entry price of around 1.32 + commissions.  I would expect the stock to move around 4 to 5 dollars after earnings based on past movements.

Update:  The way I would play this is that you would need to be up and monitoring your position on the morning of Oct 6 to the reaction to the earning news.  At that point, you would have to decide when to close your position.  I will post my update when I close out my position.  If the stock makes a strong move in one direction, you can close out that position and decide to either close out the opposing position or wait another 3 days until expiration to see if the stock then moves the other way.  Blowout earnings will probably result in a gap up, whereas, missing earnings will end up in a gap down.  The worst scenario is that the company meets earnings and the stock does not move much, but I would expect the chances for that to be low.

New transaction update

Of course, I sold the RIG options too early (but hey, I made a nice profit).

Entering new position on Dec 17.5 calls on Logitech.  Stock is breaking out of a base.  Looking for a target of 20 within 30-60 days.  Options are trading at 0.80 bid - 0.85 ask.

Can't decide whether I want to enter a long position on NANO.  Stock is behaving well, coming out of a nice base, yet its normally so thinly traded that I am reluctant to enter the position.  Could make a nice run if you can stomach the lack of liquidity in this stock.

Position update

I closed out my RIG Oct 60 calls at 4.20 this morning.  Even though I think the stock may have entered a new uptrend, I figured I would lock in my profits and revisit the stock at a later date.

I also closed out my NVDA position at 11.83 per share to lock in approx 30% profits on that position.

Opening new position in DRYS - Dry Ships Inc. Stock is currently trading at 4.87 bid / 4.88 ask.

Eastman Kodak (EK) chart is looking good.  Stock is responding positively to the release of Kodak Gallery for Facebook. 

New Position - JBLU

Opening an equity position in JetBlue (JBLU) around 6.42 per share.  Pure speculative and momentum play.

NVDA position Update

I closed out my NVDA Dec 10 calls at 2.41 per share (entry price was around 0.96 per share), banking a profit of about 150%.  Approx. holding period was about 2 weeks.  I am still holding onto the shares for now.

New Options Play - HIG

Hartford Financial Services Group (HIG)

I like the chart for HIG.  The stock fell below a support level but has now clawed back to the support tier.  The current chart pattern (weekly) is of a flag.  The daily pattern is of an upside down head and shoulder pattern (however, the price has not yet penetrated the neckline to the upside).  Combine those two patterns together and we could have a pretty nice rally if the stock manages to break to the upside and move towards a price of $28.00   I have decided to play this with Jan'11 at the money calls (22.50 - trading at 2.18 bid and 2.22 ask) and entered the position a few minutes ago at 2.22.

Of course, all options have an inherent risk of losing all your investment in it so you should only speculate if you can afford to lose the money.

Market update

RIG has finally made a move to the upside.  Options (Oct 60) are finally in the money.  Now the greed/fear tug of war starts.  At what point do you sell and get out?  Position is now profitable but there is so much more money to be made IF the stock continues to move.  I think I'll give it a bit more time yet watch it closely.

NVDA Dec 10 calls are nicely in the money and up around a 100% from purchase.  NVDA is pulling back this morning.

NFLX and CMG are both up.  So are HPQ (Hewlett Packard) and GS.  Let's see how the day plays out since the market is currently down a little.

Reflections:
One of my misses recently was TNH (Terra Nitrogen).  I spotted the pattern yet hesistated in pulling the trigger about a week ago.  In hindsight, I should have bought it, but if the economy does recover, there is huge potential in this stock.  So keep it on your radar.  If the stock does keep moving (and the market doesn't tank), previous high is around 138 (but first it has to overcome resistance in the 107-109 range).  I still like FSLR as well.

Market cycle is approaching a peak.  Lot of stocks have stochastics that are peaking indicating an over bought condition.  So be careful in your trading and keep an eye on the market.

PS:  The very long shot pattern I was playing on GS with way out of the money calls appears to have failed.  

Portfolio performance update

Here is a current update on portfolio equity positions I opened up in the last 30 days and returns to date
(Does not include positions we have closed out or speculative option positions).

Chipotle - CMG -  10.04% gain
Goldman Sachs (GS) - 5.03% gain
Netflix (NFLX)  -  4.03% gain
Nvidia (NVDA) - 31.41% gain

NetFlix

NetFlix is very strong today.  Entering position even though stock is up over 8 dollars already.  Blockbuster (the main competitor) filed bankruptcy.  Also, NetFlix announced that they are now offering streaming service in Canada.  These announcements, coupled with the short interest, could result in a fast move (wave 5?).  I will watch this closely and find a good exit point.  But NFLX is now on my list for a long term core holding.  The question really is about the best entry point.

New position Update - Goldman Sachs (GS)

Bought some Oct 165 calls (expire on 10/16) at 0.39 cents.
These are front month, 15 dollars out of the money and extremely high risk with very high probability of 100% loss.  But there is a very small chance that the stock could be at 170 by expiration.  If it does we are looking at about a 10 bagger. 

Market

Market opened strong today.  There are a lot of stocks breaking into new highs or out of solid bases.  Nike (NKE) just broke out of a 5 month base (daily charts) but that is also out of a base on base formation.  The previous base was about 2 years long (Weekly chart).  Keep an eye on this one as it appears to be a leader. 

We are currently testing the 10,700 resistance point on the DOW.  If we make it thru then a test of 11,000 is next.

We have seen a lot of flag patterns lately.  Those are fun to play and can result in huge gains in a very short amount of time.  And they should be played while they last.  Based on experience from the last big crash (late 1999 - early 2000), a lot of stocks showing the flag pattern can forecast the nearing of a market top as seen in the Nasdaq in those days. 

So just be careful while trading, but get out there and make some money.  Practice sound money management techniques and let's make some money with Stocks.

Pre-Open Update

FedEx apparently disappointed.  Shares are down before the open in pre-market trading.  The news is being treated as not so good for the economic recovery and market futures are down as well.  But the stock is not down enough to reach break even at this point.  Let's see what transpires in a few minutes.

Update:  8:33 AM - Sold FedEx puts at 2.15  now waiting to see if the stock pops back a little to find the right opportunity to close out the calls.

RIG

Getting a little nervous on RIG - If you look at the chart, we could be in an upside down cup and handle formation - which could turn out badly.  On the other hand, if the move is for real then there is a lot of upside.  Plan to get out soon to minimize risk (hopefully, with some profit).  Gotta watch this one closely.

FedEx update

I have decided to enter the FedEx straddle by purchasing Sep 85 calls and Sep 85 puts.  The 85 Calls are trading at around 1.84 (they are about 50 cents+ in the money) and the 85 puts are trading around 1.30 (slightly out of the money).  Even though I expect FedEx to go up, I just had to hedge my downside.  I thought about buying the 80 puts but I don't think the stock would move that much unless the news was catastrophic for FedEx.  So the straddle requires an investment of about 3.15 or so.  So if the stock moves to 83.50 or 76.5, the trade will break even.  Anything above that is gravy.  You will need to be up at market open and monitor the situation to sell at the right point.

Update for RIG:  I added to my October RIG calls at a lower price since the chart looks like it may move to the upside a bit more.   But the stock is not cooperating at this time.  I don't expect much movement until after options expiration on Friday.

To FedEx or Not to FedEx

I think FedEx may present a good opportunity.   I think 93 to 95 to the upside and 75 to the downside are potential targets.  The question is whether that can happen in one day or should this be played with Oct options (which almost doubles the break even point to around 7 and change rather than 3 and change - but it does give us almost 30 more days for the scenario to play out).  Still pondering what to do... Got all of tomorrow to decide since earnings will be announced on Thursday morning before the open (I generally take that as a bullish sign.  It would be interesting to see if there is a correlation between reporting earnings before open and having a good report vs reporting after market close and maybe not as good a report).

LLTC position update

Even though I expect LLTC to go up tomorrow, with expiration only 3 days away, I closed out my long LLTC September 30 calls for 1.20.  My cost basis was 0.65 cents each so that trade resulted in a 90%+ profit. 

New oppotunity

FedEx reports earnings on Thursday.  If this event is to be played (I haven't quite decided yet), the 85 calls/puts will be the play.  The question is whether the move will be big enough to offset the losses on the other side.   At least a 4 dollar move will be needed in either direction to break even or make a small profit.  I will post later, if I do decide that the trade is worth entering (It might be since traders might be looking to FedEx to be the economic barometer, and the FedEx results are expected to support or contradict the hopes of an economic recovery).  The expected earnings are almost 100%+ higher than same period last year. 

Back to the analysis I go...

BBY Strangle update

BBY beat earnings handily and updated their full year outlook.  Shares are up pre Market to around 37.25 (up 7.5%).  I will close out the calls for a 100% plus profit on the entire strangle at market open.

Update - 8:31 AM.   Sold the calls for 2.43  for over a 100% profit on the entire position.  The puts are worthless at this time.  Not bad for a 2-3 day play.

Stock updates

LLTC took a big drop today wiping out all my gains.  That's a direct result of greed when I refused to take a 100% gain and was looking towards a 300% profit potential  (I need to remind myself of the old saying "a bird in hand is better than 2 in the bush" more often).

So I decided to play a long strangle just now.  Best Buy chart is looking decent with a potential flag pattern.  If the earnings on Tuesday (9/14) surprise, we could see a nice move.  However, to hedge my bets, I purchased  Sep 35 calls for 0.55 and Sep 33 puts for 0.71.   A big move in either direction could net me some cash (hopefully more than the 1.26 I laid out.  Options expire on 9/18 so this is a very short term play on expected volatility. 

A Long Strangle is when you open a long position in both a Call option and a Put option with different strike prices but the same expiration dates.  This is similar to a Straddle but the Call option typically has a higher strike than the Put Option.
The maximum risk is limited to the total premium paid for both the Call and Put option premiums.
Maximum profit is unlimited on the call side.  The maximum profit on the put side is from breakeven to $0.
The break even point is the total debit of both the long Put and long Call premiums, or the Call strike plus the total debit and the Put strike minus the total debit.

So this would pay off if a fairly large move happens as a result of the earnings announcement for Best Buy.  If the stock moves up or down rapidly, profits can be made.  The worst scenario is that the price does not move in response to the earnings announcement making both the call and the put almost worthless.

I also opened a new position in RIG by purchasing Oct 60 calls for 3.30.  The stock has moved strongly last couple of days and shows good momentum.  Would love to get a double in a week or so and get out.

Happy trading and good luck.

Market outlook

Sorry I haven't posted in a few days, but I didn't have a chance to look at the market late last week.  Market is looking fairly good at the moment.  My buys of Goldman Sachs (GS) and Chipotle Mexican Grill (CMG) are nicely profitable.  However, since I wasn't watching the market, I failed to sell the LLTC options for a 100% gain and now the calls are back around where I bought them (slightly higher).

I really like CMG's chart.  It has broken out of a cup and handle formation in the weekly chart.  If the market cooperates, we could see 200 before long (next 3-4 months).  The stock is trading around 165. 

In general, I would not be surprised to see the DOW visit 10,600 in the next few days (maybe even this week).  Let's see how the day plays out.

PS:  I shouldn't have to state that September (historically) is the worst month for stock returns, with October having some of the largest drops on record.  So be careful when playing the market and keep a close eye on your holdings.

Market rally 09-01-2010

Market is off to a nice start this morning - all indicators are pointing to a way oversold condition.  Expect big gains over the next few days regardless of the overall trend.  The 10,000 psychologically important level held again.  With so much money on the sideline (and everyone very bearish), a rally could turn explosive and we can see large gains if the hedge funds start moving money back into equities.

Update: Opened a new position in Chipotle this morning (CMG). Trying to decide whether to do the same with ISRG.  Also opened a new call position in LLTC - Sep 30 calls.