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.
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.
Connecting with LinkedIn Options
LinkedIn [LNKD:NYSE] has seen some massive volatility since its IPO date, and as a result, its options, which started trading on May 30, have seen its premiums priced accordingly. At the start of June, options trading $15 out of the money were holding more than $1 in time value. Even today, $4 out of the money puts are holding nearly $1 in value. If you are an options writer, you may want to consider opening up some positions.
On Monday, I opened up bullish position on LinkedIn. Although I firmly believe the stock is well over valued at current levels, I believe that the shares are ready for a dead cat bounce. I sold to open put options at 72.50 for June, gathering $1.40. The share have climbed a few dollars since, but the put option is still bidding 80 cents at the close of Tuesday. The 75 puts look more attractive, bidding $1.55 at today's close, but also provide less downside protection.
Writing the 72.50 puts and earning a conservative 80 cents would provide you with 6.07 per cent protection, for the remaining three days of the week. You would also earn 1.05 per cent over the next three days by completing this trade. That's better than a GIC over a year! The margin requirement is also very limited, and required less than $2,000 margin per contract.
If you are less bearish (that is, more bullish or neutral), a 75 put may be more for your liking. At close, the June 75 puts were valued at $1.55, returning 2.03 per cent over the next three days. However, you would only be protected 3.78 per cent.
Considering the stock's volatility, expect the value of the options to hold significant risk value until the final hour of the week. Being patient on LinkedIn may reap benefits.
Those who are more neutral should consider writing the 77.50 or 80 call options. This would require no additional margin, because it would be a short combination trade, something I will most likely be attempting later this week. The 77.50 call was bidding $1.35 while the 80 call was 60 cents.
One final consideration would be an immediate short straddle at 75. The premiums on the call and puts at bid were netting $4.10. You would profit if the stock traded between $70.90 and $79.10 on Friday. This trade gives you substantial up and downside protection, more protection than the 72.50 put and the 77.50 call alone. However, your total profits will be limited depending on when you close the in-the-money option.
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. As already mentioned, I currently have option positions and have plans on making more trades on the above mentioned stock in the next 72 hours.
On Monday, I opened up bullish position on LinkedIn. Although I firmly believe the stock is well over valued at current levels, I believe that the shares are ready for a dead cat bounce. I sold to open put options at 72.50 for June, gathering $1.40. The share have climbed a few dollars since, but the put option is still bidding 80 cents at the close of Tuesday. The 75 puts look more attractive, bidding $1.55 at today's close, but also provide less downside protection.
Writing the 72.50 puts and earning a conservative 80 cents would provide you with 6.07 per cent protection, for the remaining three days of the week. You would also earn 1.05 per cent over the next three days by completing this trade. That's better than a GIC over a year! The margin requirement is also very limited, and required less than $2,000 margin per contract.
If you are less bearish (that is, more bullish or neutral), a 75 put may be more for your liking. At close, the June 75 puts were valued at $1.55, returning 2.03 per cent over the next three days. However, you would only be protected 3.78 per cent.
Considering the stock's volatility, expect the value of the options to hold significant risk value until the final hour of the week. Being patient on LinkedIn may reap benefits.
Those who are more neutral should consider writing the 77.50 or 80 call options. This would require no additional margin, because it would be a short combination trade, something I will most likely be attempting later this week. The 77.50 call was bidding $1.35 while the 80 call was 60 cents.
One final consideration would be an immediate short straddle at 75. The premiums on the call and puts at bid were netting $4.10. You would profit if the stock traded between $70.90 and $79.10 on Friday. This trade gives you substantial up and downside protection, more protection than the 72.50 put and the 77.50 call alone. However, your total profits will be limited depending on when you close the in-the-money option.
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. As already mentioned, I currently have option positions and have plans on making more trades on the above mentioned stock in the next 72 hours.
How Rich People Think
Statistics in the first week of June have shown that another recession may be on the horizon. And to think, we just got out of a recession two years ago. But author Steve Siebold claims that more people will emerge as self-made millionaires than ever in the past during the next five years.
Let's be frank, America is a country full of problems in dire need of solutions. But America is also full of smart entrepreneurs, creative thinkers, and inventors that can turn problems into profitable opportunities. Siebold says that the amount of resources available at our finger tips has never been seen before. Technology has given us the tools to connect with the right people and find information. These tools along with significant problems with energy, the environment, the financial system, and education will breed millionaires.
Steve Siebold, author of "How Rich People Think" (link to view item on Amazon on the left) interviewed hundreds of millionaires over 27 years to determine how these people think and why they succeed where so many have failed. In a recent television interview, he pointed out a few subtle differences in their mindset.
The first thing he mentioned was that millionaires use money as an opportunity rather than a means and they view money as something positive, not as a negative or a fear-based asset.
Siebold writes that millionaires use the money to make more money, while the rest of us save money in fear that we will need it for retirement or that we will be laid off. They earn money and work towards something they want instead of earning money to move away from something they don't want, which is what the masses do. It's like working at a job you dislike and saving enough to leave the place, or you can think like a millionaire and work at a job you dislike, but save enough to start a new life. They may have the same result, but the subtle difference in mindset is key.
He also explains that millionaires view money as something positive, where most people view it as something negative. People who do not have a millionaire mindset will think rich people are greedy, narcissistic, and don't pay their fair share of taxes. It's a very common belief from low and middle income earners. For the first 23 years of my life, I thought rich people were all snobby, and then I worked at a brokerage, soon realizing that the millionaires I dealt with everyday were more optimistic, more respectful, and more tolerant of others. It completely changed my perceptions on rich people. Strangely, I found those who were "poor" had a unique sense of entitlement, wanting things for free, wanting refunds, and complained over the smallest things for reasons they found justified.
Another reason rich people are rich is because they seek resolution during dark times. They reject middle-class cynicism during recessions. It's difficult for people to move forward when the media, friends, and family are negative, yet the ones that rise to the occasion are often spoiled with the riches and goals they desire. It is a little known fact, but more millionaires were made during the Great Depression than in any era of American history. Think for yourself, over the last three years, since the recession started (and ended in 2009), did you find yourself saving money for a rainy day or did you find yourself investing it in assets and creating solutions?
It seems so simple, so why do so few of us ever become high net-worth? It's because we've been trained by those who do not possess riches and think like the common man. We have been taught by people like our parents, friends, church leaders, and maybe an entry-level banker on how to save money. But who in your life has ever taught you to create opportunity with the few dollars you have?
When you treat money as something you earn for being an employee then you become stagnant. Financially, you will never grow. But if you treat money as your employee, as a tool to become wealthier, then you grow as a person, as will your riches.
Let's be frank, America is a country full of problems in dire need of solutions. But America is also full of smart entrepreneurs, creative thinkers, and inventors that can turn problems into profitable opportunities. Siebold says that the amount of resources available at our finger tips has never been seen before. Technology has given us the tools to connect with the right people and find information. These tools along with significant problems with energy, the environment, the financial system, and education will breed millionaires.
Steve Siebold, author of "How Rich People Think" (link to view item on Amazon on the left) interviewed hundreds of millionaires over 27 years to determine how these people think and why they succeed where so many have failed. In a recent television interview, he pointed out a few subtle differences in their mindset.
The first thing he mentioned was that millionaires use money as an opportunity rather than a means and they view money as something positive, not as a negative or a fear-based asset.
Siebold writes that millionaires use the money to make more money, while the rest of us save money in fear that we will need it for retirement or that we will be laid off. They earn money and work towards something they want instead of earning money to move away from something they don't want, which is what the masses do. It's like working at a job you dislike and saving enough to leave the place, or you can think like a millionaire and work at a job you dislike, but save enough to start a new life. They may have the same result, but the subtle difference in mindset is key.
He also explains that millionaires view money as something positive, where most people view it as something negative. People who do not have a millionaire mindset will think rich people are greedy, narcissistic, and don't pay their fair share of taxes. It's a very common belief from low and middle income earners. For the first 23 years of my life, I thought rich people were all snobby, and then I worked at a brokerage, soon realizing that the millionaires I dealt with everyday were more optimistic, more respectful, and more tolerant of others. It completely changed my perceptions on rich people. Strangely, I found those who were "poor" had a unique sense of entitlement, wanting things for free, wanting refunds, and complained over the smallest things for reasons they found justified.
Another reason rich people are rich is because they seek resolution during dark times. They reject middle-class cynicism during recessions. It's difficult for people to move forward when the media, friends, and family are negative, yet the ones that rise to the occasion are often spoiled with the riches and goals they desire. It is a little known fact, but more millionaires were made during the Great Depression than in any era of American history. Think for yourself, over the last three years, since the recession started (and ended in 2009), did you find yourself saving money for a rainy day or did you find yourself investing it in assets and creating solutions?
It seems so simple, so why do so few of us ever become high net-worth? It's because we've been trained by those who do not possess riches and think like the common man. We have been taught by people like our parents, friends, church leaders, and maybe an entry-level banker on how to save money. But who in your life has ever taught you to create opportunity with the few dollars you have?
When you treat money as something you earn for being an employee then you become stagnant. Financially, you will never grow. But if you treat money as your employee, as a tool to become wealthier, then you grow as a person, as will your riches.
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