Playing the Expiry: July 29, 2011
We're halfway through the earnings seasons here in North America and many US stocks are beating estimates through the roof. As mentioned earlier, the big boys like Apple [AAPL:NDQ], Google [GOOG:NDQ], and IBM [IBM:NYSE] all reported stellar earnings, pushing stocks to new heights. This week, China's Baidu [BIDU:NDQ], Las Vegas Sands [LVS:NYSE] and Amazon.com [AMZN:NDQ] posted earnings that also pushed their stock up.
Implementing an options strategy before earnings is always a good way to make money, but if you've missed the opportunities by waiting on the sidelines, then a post-earnings spread or combination could still hold profitable.
Baidu, whose earnings were on Monday, saw its stock soar nearly $10 the following day to $165. Now that investors have given a new valuation on the company, we are seeing some stability and support above $160 and resistance at $165. A short combination (or strangle) could prove to be successful if the stock's lack of volatility remains for the remainder of the week.
The options still have some significant time value on them. The 160.00 put and the 165.00 call for July 29 expiration are both priced just above $1.00. Depending on the fill, this would provide roughly 2.8 per cent downside and 2.8 per cent upside protection with the stock trading at around $162.50.
Amazon.com is trading higher by $11 this morning on good earnings and a better-than-expected forecast. The shares are at an all-time high, at around $225 today. A short straddle at 225.00 for July 29 expiration looks extremely tempting. The premiums on the 225 calls and puts are about $2.80 and $2.60, providing a net return of $5.40 or 2.4 per cent protection from the strike price.
The only warning to this trade would be that the shares are now above the Bollinger Bands. Some may view this as a bullish moves as traders are willing to push it up higher than the normal trading range, others may see this as an opportunity to short the shares, hoping it will fall back into the regular trading range.
Lastly, Las Vegas Sands, whose shares are up $1.56 this morning to $47.86 courtesy of good earnings, could also provide for a good trade. The shares, which are also above the Bands, still has massive premiums for out-of-the-money calls and puts. Both the 49.00 call and 47.00 put have more than 30 cents of value. This would net over 60 cents. If you're more neutral and think the shares will remain very close to $48 for the remainder of this week, you could write a straddle and collect 60 cents and 74 cents on the call and put respectively.
The shares however, have seen resistance at $48 and is having difficulty pushing upwards. This also occurred three months ago just before earnings. With this in mind, one may consider keeping more downside protection and being more aggressive with the call.
Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. Reminder that all Playing the Expiry posts are transactions placed in my account and should not be taken as professional advice. I currently have weekly call options (long and short) on Baidu.com and uncovered weekly calls and puts for Las Vegas Sands at 49 and 48 respectively.
Playing Baidu Earnings
If you've bought even just one at-the-money call option on Apple, Google, or IBM this quarter for its earnings, you've made yourself some good money. Google up $60 the next day, Apple up $25, and IBM, normally less volatile than the former two, up $10 on knee-jerk reactions. All moves greater than expected volatility priced on the weekly options.
Later today, Baidu, the Google of China, will release its own second quarter earnings and the stock is being pushed to new heights. Trading currently at over $157.40, the stock is at a new all-time high, with growth nearly doubling every year. That's unbelievable growth, but also unbelievable expectations.
There are typically four ways to make money on an earnings via the options route. If you're bullish on the earnings report, and think that the stock will fly higher, even at nearly 100 multiple, then a bullish options trade might be best.
Today, I implemented a bull call spread. This type of trade mimics buying the stock and writing a call, without risking an additional $150 per share. I purchased the July29 calls at a strike of 155.00 for a cost of $7.70. I later sold, after the stock made a move, the 165.00 call with the same expiration for $3.77. This comes to a net cost of $3.93. Instead of buying the shares for $157.50, I only paid $3.93 to make the same gamble. The only difference is that my profits are capped if the stock moves above $165, but I would still earn $6.07 or 154 per cent return with the best-case scenario.
The reason one may implement a bull call spread versus a regular call purchase is that it lowers the cost to something reasonable. It also significantly lowers the cost if one were to purchase the shares, with the loss limited to just the net cost.
Let's hope the only time I do open up a bull call position is the time it doesn't fall. Happy trading.
Disclaimer: All trades mentioned are real-life trades implemented by the author and is not meant to be taken as investment advice. When trading options, consider its risks and investment objectives. Speak to a licensed financial advisor or representative.
Later today, Baidu, the Google of China, will release its own second quarter earnings and the stock is being pushed to new heights. Trading currently at over $157.40, the stock is at a new all-time high, with growth nearly doubling every year. That's unbelievable growth, but also unbelievable expectations.
There are typically four ways to make money on an earnings via the options route. If you're bullish on the earnings report, and think that the stock will fly higher, even at nearly 100 multiple, then a bullish options trade might be best.
Today, I implemented a bull call spread. This type of trade mimics buying the stock and writing a call, without risking an additional $150 per share. I purchased the July29 calls at a strike of 155.00 for a cost of $7.70. I later sold, after the stock made a move, the 165.00 call with the same expiration for $3.77. This comes to a net cost of $3.93. Instead of buying the shares for $157.50, I only paid $3.93 to make the same gamble. The only difference is that my profits are capped if the stock moves above $165, but I would still earn $6.07 or 154 per cent return with the best-case scenario.
The reason one may implement a bull call spread versus a regular call purchase is that it lowers the cost to something reasonable. It also significantly lowers the cost if one were to purchase the shares, with the loss limited to just the net cost.
Let's hope the only time I do open up a bull call position is the time it doesn't fall. Happy trading.
Disclaimer: All trades mentioned are real-life trades implemented by the author and is not meant to be taken as investment advice. When trading options, consider its risks and investment objectives. Speak to a licensed financial advisor or representative.
Marble Slab for Cheap
Save your movie stub from a recent movie and get a good deal. Have a friend that doesn't like ice cream (blasphemy I say) or is lactose-intolerant? Keep their movie stub and use it to treat yourself. Or, if you don't want to justify spending $12 at the movie to save $3 at Marble Slab, then maybe go through the trash, if you're really that desperate.
I recently exercised the coupon and found that although they have strict rules, which are available on their Facebook page, I found the cashiers and attendants did not enforce it entirely. Actually, the employee did not even verify the paper I gave him was a movie ticket! The seven-day period after is meant only to ensure customers do not forget about the promotion and is not actually a requirement, but use it as early as you can, because the deal ends August 4.
In mid-May, there were some locations that were unaware of the promotion, but I believe most stores know about it now, so you should not face any conflicting information. However, if there are still issues, Marble Slab has suggested people call 1-888-337-7522, their customer service hotline.
Other than that, I hope everyone enjoys their summer. I'll get back to financial posts when I have some spare time.
Canada Day Options for Research in Motion
Playing the Expiry for July 1, 2011
Canadians will be celebrating their national birthday this Friday, but inter-listed stocks like Research in Motion [RIMM:NDQ,RIM:TSE] won't get a day off down south.
RIMM weekly options are still pricing in two full days of trading, but don't expect much movement on RIMM on Friday because of the holiday, unless significant news is announced.
The stock, trading at roughly $28.78 on the NASDAQ, in essence, has one and a half days until expiration, if you believe that there will be little price-action on Friday, which historically is true. The 29 call last traded at above 35 cents, giving you a break-even price of $29.35 or 1.98 per cent. The stock has been beaten down from $70 to new historic lows, and not too many are giving it a fighting chance in near- and long-term.
Whether this is covered or uncovered, it's a good chance to earn a pretty penny before the long weekend.
Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. Reminder that all Playing the Expiry posts are transactions placed in my account and should not be taken as professional advice.
Canadians will be celebrating their national birthday this Friday, but inter-listed stocks like Research in Motion [RIMM:NDQ,RIM:TSE] won't get a day off down south.
RIMM weekly options are still pricing in two full days of trading, but don't expect much movement on RIMM on Friday because of the holiday, unless significant news is announced.
The stock, trading at roughly $28.78 on the NASDAQ, in essence, has one and a half days until expiration, if you believe that there will be little price-action on Friday, which historically is true. The 29 call last traded at above 35 cents, giving you a break-even price of $29.35 or 1.98 per cent. The stock has been beaten down from $70 to new historic lows, and not too many are giving it a fighting chance in near- and long-term.
Whether this is covered or uncovered, it's a good chance to earn a pretty penny before the long weekend.
Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. Reminder that all Playing the Expiry posts are transactions placed in my account and should not be taken as professional advice.
Reversing Six Weeks of Bloodshed
The American markets have been unkind since the start of May, but the markets might finally be giving investors a reprieve from a six-week correction. Chart patterns and techhnicals are indicating that a rally, maybe just a dead-cat bounce, is in the cards in the upcoming days. We've already seen three consecutive up days in New York, so there are still buyers out there.
The first positive sign is a convergence of negative indicators. Both the DMI and MACD on the Dow Jones have become less negative and might become bullish this week. Secondly, the Dow Jones is showing support at 12,000 and has held steady over the last three days, a good sign. Lastly, peculiar volume spikes have occurred only during reversals.
I don't need to talk too much about the DMI and MACD, as I've touched on it many times before, but as you can see, the "blue lines" are moving closer to the "red lines" on both lower indicators, suggesting that the selling is about over. A crossing of the blue above the red is considered a buy signal.
With the Dow approaching its inclining 200-day moving average, this could prove to be support for bullish traders. It also helps that the Dow is very close to its 3-year weekly trend line establish back in 2008 and a second dip in mid 2009. The Bollinger Bands have also stopped pushing downwards, constricting at these levels.
Daily volume on the Dow Jones barely budges above 200 million; most days, it doesn't even trade above 150 million. But there have been three instances where daily volume picked up and peaked just below 400 million shares. This occurred in the middle of March, when the markets massively corrected and touched annual lows. Days later, the market would rally and pare all losses in the prior weeks.
The second instance of abnormally high volume occurred in the final days of April, when the Dow Jones and other markets reached multi-year highs. After volume returned to normal on the last day of April, the market started its six weeks of bloodshed.
The third instance of high volume occurred just last week, when the market was preparing itself for the possibility of a Greek tragedy. Although no aid has officially been given to Greece, there is much belief that Greece will not default on its debt. Since the peak in volume, the markets has moved up about 2 per cent. If the abnormal volume is an indicator of reverse trading, we could see a nice move upwards.
The US stock market has not had weekly losses for six consecutive weeks since 2002. After that, the market rallied more than 40 percent in the following year.
The first positive sign is a convergence of negative indicators. Both the DMI and MACD on the Dow Jones have become less negative and might become bullish this week. Secondly, the Dow Jones is showing support at 12,000 and has held steady over the last three days, a good sign. Lastly, peculiar volume spikes have occurred only during reversals.
I don't need to talk too much about the DMI and MACD, as I've touched on it many times before, but as you can see, the "blue lines" are moving closer to the "red lines" on both lower indicators, suggesting that the selling is about over. A crossing of the blue above the red is considered a buy signal.
With the Dow approaching its inclining 200-day moving average, this could prove to be support for bullish traders. It also helps that the Dow is very close to its 3-year weekly trend line establish back in 2008 and a second dip in mid 2009. The Bollinger Bands have also stopped pushing downwards, constricting at these levels.
Daily volume on the Dow Jones barely budges above 200 million; most days, it doesn't even trade above 150 million. But there have been three instances where daily volume picked up and peaked just below 400 million shares. This occurred in the middle of March, when the markets massively corrected and touched annual lows. Days later, the market would rally and pare all losses in the prior weeks.
The second instance of abnormally high volume occurred in the final days of April, when the Dow Jones and other markets reached multi-year highs. After volume returned to normal on the last day of April, the market started its six weeks of bloodshed.
The third instance of high volume occurred just last week, when the market was preparing itself for the possibility of a Greek tragedy. Although no aid has officially been given to Greece, there is much belief that Greece will not default on its debt. Since the peak in volume, the markets has moved up about 2 per cent. If the abnormal volume is an indicator of reverse trading, we could see a nice move upwards.
The US stock market has not had weekly losses for six consecutive weeks since 2002. After that, the market rallied more than 40 percent in the following year.
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