Earnings Trade Idea: Priceline

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Priceline reports 2/26 AMC.  Below is a history of PCLN EPS/Revenue estimates and actual reported numbers.  PCLN has a history of beating on EPS and revenues except for a couple misses in 2012 and one in 2011.

pcln_0226c

Looking at competitors of PCLN that have recently reported can give us some insight on expectations of price action (earnings data from StreetInsider):

  1. EXPE – EPS (miss) revenue (beat); opened down -1.61% and closed -2.67%
  2. TRIP – EPS (beat) revenue (beat) ; opened down -9.21% and closed -7.14%
  3. OWW – EPS (miss) revenue (beat); opened  up 0.37%  and closed +16.67%
  4. TZOO – EPS (beat) revenue (beat); opened up 4.11% and closed +24.31%

From a competitor standpoint it was a mix on EPS but all beat on revenue.  The opening move seemed fairly mute except for TRIP, which saw buyers and hit highs within the first 30min of trading.  PCLN was talked about stock on 8/8 when it saw a big gap down and closed near the lows.  In this report it missed on revenues but more importantly it guided down for Q3’12 EPS (to which it ended up beating on Q3 release).

For further explanation of the excel tables and data in them please refer to this post.

pcln_0226b

Looking at the Augen StDev 1min After Open average it is showing 3.75.  I like to take this multiplied by the current StDev Move Before Earnings which is showing 13.79.

3.75 * 13.79 = 51.71; this is my expected point move based on prior price action and volatility movements into earnings.

The next table shows implied volatility (IV) moves and looks at the ATM straddle to see what the option market is pricing (I prefer to use the bid for purposes of the worse possible fill).  On the far right the green cells represent a win selling the straddle and the red cells represent a loss):

pcln_0226d

Looking at the data the 2 most recent earnings saw some of the biggest moves on a percentage basis and we are right about where we were back on the 8/7 earnings release in which PCLN saw its biggest move.  Some other notes:

  • Straddle (going off bid price) is pricing 7.2% move
  • ATM Call IV is low comparing to past
  • Except for 2 prior earnings the straddle sale has been very profitable and alternated quarters between a win or loss

To me selling volatility doesn’t seem like the better trade here.  But I also think that the two prior earnings moves has many with that observation and I like to think when things become too obvious the opposite can happen.

So is volatility a sale?  Given the data its a no in my opinion but now that a big move is expected, I believe the opposite will happen.  Also the competitors stats have me leaning towards a volatility sale as well, especially when they have had previous big gaps on earnings yet recent release is fairly muted from close to open.    I definitely would not sell a straddle unless you can afford a big loss.  I personally like selling an Iron Condor (managed risk vs straddle sale).

Looking at the chart (notes on chart):

pcln_0226

The chart above has yellow dashed lines showing where I want PCLN to stay within into Friday expiration.  The trade I like:

Sell March1 620/625/735/740 Iron Condor for 1.92 credit, risk $308.

Below is the risk profile with red dashed lines representing a 10% move.  In this trade I make a profit (at Friday expiration) if PCLN stays within -7.2% to the downside and +9.7% to the upside (all going off EOD data 2/25/2013):

pcln_0226a

Also you could come in on those strikes for a lower risk, lower probability trade.  I like this trade as I am looking for volatility to be a sale and look for the price to stay contained.  If I price action goes against my thoughts/expectations then this trade will probably be a loser.  Personally I trade and would recommend trading earnings accepting a 100% loss as earnings trades are a gamble in where all you can control is your risk.

Trade Idea: LVS for the Upside and Low Risk with Options

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While I was absent from the markets on Friday there seemed to be much buzz about LVS in the social media space and across the options market.  Much of the action in LVS options is attracted to the March and May option chains.  A picture of the March chain is below:

lvs_0222

This to me looks like a ratio spread to be confirmed by looking at open interest on Monday.  In this spread the trader is buying the March 52.25 calls and selling twice as many March 55 calls for a net debit 0.69c.  Also there was action in the May options chain as well.  There was a big block of 17,397 calls on the ask for a 2.05 debit.  All together the May 52.5 calls saw volume of 27,245 contracts vs open interest of 282.  A picture of the T&S can be seen below:

lvs_0222b

Now that the options action has set the alert, it is time to look at the chart to see if the technicals align with the action:

lvs_0222c

In the chart we can that LVS has been in a downtrend (annoted by red bars) with a reversal bar (green bar).  If LVS breaks above the high of the green bar there is a probability for a continued long trade.  If it breaks below the low of the green bar then the downtrend is likely to resume.  Note that this is all short-term price action in timeframe of a swing trade.  On another note for the bullish side LVS saw a nice hammer candle on the 100ema on volume above average that was confirmed by Fridays candle on volume above average.

So what’s the trade?

In this scenario I like to look at the recent option action, especially the ratio spread.  In this trade the trader is looking at the following risk profile with March expiration in mind:

lvs_0222dIn following this trade I would be looking at upside for LVS as this big trader is looking for it to close between 52.43 and 57.57 at March expiration.  The furthest red-dashed line to the left represents current price.  This risk profile combined with the May action as annotated above has me leaning bullish in LVS.

My trade recommendation is an upside March call butterfly spread.  I personally would trade the same ratio spread but for margin purposes I believe the butterfly spread offers much of the same opportunity without the same margin requirements.  I like the March 52.5/55/57.5 call butterfly for a 0.19c debit (max loss $19).  This captures approximately the same range for a reduced cost.  Risk profile can be seen below:

lvs_0222e

I really like this trade from a risk:reward standpoint and that it actually follows the big trade that was put on in the March ratio spread.  As always this trade is based on my thoughts and the individual trader is responsible for his/her decisions.

Was Last Night A Catalyst For These Stocks

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Going through the news today I read that President Obama signed a cybersecurity executive order, which was also mentioned in last nights State of the Union speech.  You can read more from SlashGear but it will consist of:

“The executive order will lead to the creation of a group led by the feds to work with private companies in the creation and implementation of voluntary standards. This follows an attempted cybersecurity bill that was put forth last year and that ultimately died in August. The Obama administration stated that this executive order is only the beginning, and that it would continue to push for an approved cybersecurity bill.”

During the speech he mentioned the continuous and rapidly growing cyberattacks from foreign nations and companies trying to dismantle and disrupt our security and economy.  Reading this had me think of some cybersecurity  stocks which as an industry really haven’t performed this year and this news bit may be a small catalyst to jump start some performance.  For this I went to The PPT and did a Company Search with the keywords “cyber security” and “cybersecurity” and came up with the following 15 results (sorted by market cap):

ppt_0213

Below I have imported these to FinViz so that you can also get a view of the charts and click here to sort to your liking:

finviz_0213

Also I did not read through all these company descriptions but from a glance I can see that most of them pertain to cybersecurity.  I can also see ESI (an educator) in there which probably got flagged due to its cybersecurity programs.  As always make sure you do your own verification.

Position Updates – AAPL, AMZN, V

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Yesterday  the bears definitely had the upper hand in the morning only to see the selling subside and the often seen grind up continued through the afternoon.  Much of the excitement was in the afternoon surrounded by none other than news concerning Apple (AAPL).  Overall a fun day that is still seeing individual stocks set-up and break out.

I personally am still light in the portfolio.  I posted previously about my Amazon (AMZN) and did get filled and exited that position Wednesday as I put a note out on the stream.  I exited as I did not like how AMZN cut through 265 on volume so I was looking to take advantage of any up swing by placing an order at the mid-price to which I got filled.  Below is my post to the stream and orders:

Capture

 

amzn_20130208

 

As I was already out of the position, yesterday saw a move down to 255 and did put this position underwater about -$250.oo give or take but price action brought it back up to slightly positive .  Either way I was out so moving on.  I did try to put on another similar position for a 15c credit capturing the 245-255 range but never got filled as my entry marked near a bottom in the price action.

I remain in the AAPL position as shown in this post.  I haven’t played AAPL in a while and if interested into why I got in it is stated in the linked post.  It is a March 460-480-490 Call Broken Wing Butterfly for a debit of 4.25.  Yesterdays news definitely helped this position.

Then I put on a short position.  Yes I feel like one of these move to the downside is going to stick shaking some further weak bulls.  Yesterday I put on a short position via options in Visa (V).  It came out with earnings Feb 6th AMC and beat on EPS and revenues.  The action in Visa yesterday had me believing a pause or slight pullback is due after a very consistent run as of June 2012.  I am looking for a pullback to the 50sma (blue line) which coincides with a gap support area around 154-155.  Visa has pretty much been in a basing pattern since the new year gap and I am looking for a pullback to at least the bottom of this base.  Also the Relative Strength Average (purple line in blue highlighted box) is beginning to roll over, something we have not since but only once during this recent run.

v_20130208

With this information I entered into a Mar/Feb 155/150 Put Diagonal spread for a 2.50 debit.  This position will provide a return of approximately 30% if 155 is hit and will provide near a max return if the gap is filled, all being around next week Friday expiration.  I wasn’t too concerned about the greeks when putting this on as I am looking more for direction.  But  I also wanted to take the greeks in consideration and wanted to take advantage of any increase in IV so the Diagonal gave me what I wanted:

  • Delta – than a Calendar spread while creaqting profit from downside move
  • Theta – no big time decay (becomes theta positive w/downside move) as seen with a single call position
  • Vega – wanted positive vega so that an increase in volatility will benefit the position

Below is a risk profile of the current trade:

v_20130208a

Friday’s Hybrid Movers w/Volume Score

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One of my favorite scans to run in The PPT is daily hybrid movers with an accompanying higher than average volume score.  @RaginCajun does a fine job throughout the day charting hybrid movers and linking them to FinViz.  I like to look at hybrid movers and also add the volume element.  With this screen my goal is to find some more of the under-followed names.  With this I believe they may be starting to get accumulated by funds and being relatively unknown, aren’t far in the move that they may take.  That is my opinion anyway and this doesn’t always mean they they will have they will have that upside move I am looking for.  But, it should be noted that they were a top hybrid mover with volume.  I then like to look at the technicals to see how the chart structure looks and filter the best candidates for an upside move.

Below are some of the highlighted stocks on Friday that I posted to Twitter and with notes and FinViz link in company name:

1) WX (WuXi PharmaTech (Cayman) Inc.) – volume supported the b/o above 15, like the pullback to the 50sma

 

2) LFL (LAN Airlines S.A.) –  regional airline w/volume coming in and 12+ days to cover, RS avg starting to trend up

 

3) GLF – (Gulfmark Offshore, Inc) – basing just below 200sma, like the pattern & volume off support, note the RS avg slope

 

4) GGC (Georgia Gulf Corp.) – seeing accumulation in Feb 50 calls, may be hedging short w/22.5% short float w/8.85 days to cover

 

 

 

Why I Initiated a Short Position on the Russell 2000 w/Options

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It was hard not to get caught up in the euphoria of the market yesterday and the day before if you were long positions already   There were many comments on the stream yesterday and today about chasing and I would agree.  That comment can also be broken down into size as well.  Sure it is unwise to put on a full long position at these levels but if you were to initiate a 33% or 25% position (depending on your scale model) then you may have a great trade.  As for me I have no long positions at this moment but initiated a 1/2 size short position yesterday on the Russell 2000 (RUT).  I believed things became a bit overextended and I was watching two metrics I like to pay attention to:

  • percent above the 10 EMA (1st indicator pane) looking for a 3% extension 
  • points above the 20 SMA (2nd indicator pane) looking at the 30pt mark for warning and 40pt mark for an extreme

I like to look at these two indicators for times like this when the chase is on.  Also when they breach the points it is a warning and a possible time to initiate a position for a trade in the opposite direction.  We all know that overbought or oversold can become overbought-er or oversold-er (please appreciate the humor) so the time in where I will add to the trade is when the RUT trades back under those points.  Below is a 1 year chart with blue highlighted boxes of where the RUT first breached these points and then traded back under (notes on chart):

rut_20130103

The option trade that I chose was the Feb/Jan1 850 Put Calendar for a 13.08 debit.  First here is a chart of the RVX (Russell 2000 VIX) with notes:

rvx_20130103

With that I was looking for a pullback option strategy that took advantage of a pop in volatility and the strategy that came to mind was the Put Calendar as this took advantage of a pullback and was positive vega.  I did screw up in putting this position on in that I sold the Jan1 option (not much time or benefit) instead of selling the next week Jan2 option.  I only collected 0.15c on that Jan1 option instead of the near 2.00 I could have collected for the Jan2 option.  A mistake on my part.  I do believe that it can be recoverable and I do not have a full position on either so the dent to my account is manageable.  But this is a good lesson in taking the time to slow down and actually confirm the order when that pop-up window asks you.

Digging Further Into the Gun Trade, Watch Ammo and Supplies

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The post is broken down into the following order:

  • prior trade in Sturm, Ruger & Co. (RGR)
  • news that drove me to current research
  • personal experience
  • stock of choice

Prior trade in Sturm, Ruger & Co. (RGR):

Its no secret that the gun and gun related product trade is in full effect right now with recent news of the shootings that it seems news can’t even keep up with.  I recently wrote about a trade opportunity in Sturm, Ruger & Co. (RGR) after it saw selling.  My attention was brought to this stock after the Newtown tragedy.  Also guns were a momentum long play off political debate and then saw selling.  The Newtown school shooting brought even more attention and these stocks saw further selling into where I believe the news overruled the trade.  In the post “Getting Long the Gun Trade with Options” I believe the RGR trade was of low risk if you were willing to be long the stock below 35.50 (currently trading at 43.27).  You were long the equivalent of around 46 shares (per 1-lot) on a margin requirement of around $450.  Right now that trade is showing a gain of $77.50 (+17%) if you were filled at the trade recommendation.

News articles: 

With that aside I read some interesting articles that talk about the demand for ammo and gun supplies now.  These articles are titled “Ammo Suppliers Everywhere Are Reporting Shortages From A Huge Surge In Demand” and “Buy the bullet: Rush on ammo sales“.  These posts have the following information:

  • sold more than 3.5 years worth of magazines in a 72-hour time span
  • UT Arms, like many retailers, is sold out of 30-round magazines
  • many supplies for the AR-15 are out of stock
  • employee of Dick’s Sporting Goods said that “it seems like more people are coming in than ever before” looking for ammunition and other accessories

Personal experience:

Those were some snips that I pulled from the articles.  Needless to say I believe ammo prices will go up and as a hunter that hurts.  Not even talking about rifles I have witnessed the price of ammunition go up for shotguns as well. One thing I buy a lot of is 12-gauge  2 3/4in 6-shot heavy loads.  The best prices for these are at Wal-Mart (WMT) as they have not marked up the price much.  But when I could buy a box of 20 last year for 11.96, I am now paying 2 dollars (16.7%) higher in just over a year.

With reading the post and seeing the trend of rising ammunition prices I am thinking more hunters might go into reloading their own shells.  Even I am thinking of it.  I’ve stated the price for shotgun rounds but I have paid as high as $50 dollars for a box (20 rounds) of rifle shells.  Now one might say I don’t see why you need to shoot 20 rounds of ammunition at an animal.  I agree but also note that hunters are concerned about the zero of their rifle every year (at minimum) and it may take at a minimum of 10 rounds to know if my rifle is hitting where it is supposed to.

Stock of choice:

In looking for “reloading” stocks I turned to The PPT and used the probably under-utilized search function and typed in “reloading”.   With this two stocks pulled up, Olin Corp. (OLN) and Alliant Techsystems Inc. (ATK).  Of the two I decided to look at ATK due to its prior upside gains and chart structure as OLN has more of  range-bound chart.  Below is a 10 year weekly logarithmic chart with some trend lines, the 10 & 40 week averages, and volume at price:

Note the relative strength and how it has crossed above its moving average of the lows.  Also it is currently against some resistance but I believe it is a buy on a pullback and will take out that resistance making it new support.  It is also in a volume pocket to where 70 seems like comfortable target.  Now it may see some selling/profit taking as it’s over 40% off its 2012 lows, but the formation of the right shoulder of an inverse head and shoulder would be a buy if it were to trade below 55 or around that level.  Below is a zoomed in chart with same parameters:

atk_20121227a

 

When a Lagging Industry Can Perform

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In reading this post from @The_Real_Fly he provided a table of today’s leading industries.  None other at the top was Solar.  I honestly can’t remember the last time I traded a solar stock and I really have no interest in this industry yet.  First Solar (FSLR) was always a fun one to trade but for me that was back when it was above 100.

With Solar being the lead percentage gaining industry today it got my interest as it has been a poor performer this year and previous years.  Using TAN (Guggenheim Solar ETF) as a proxy for the solar industry (holdings), it is down over -37% YTD.  In 2010 it dropped over -28% and it 2011 it dropped over -66%.  Despite these horrible year statistics, something that stood out was its beginning performance on the year usually between 6-7 weeks.  Below is a weekly logarithmic chart (preferred in long time frames) of TAN and you can see this beginning performance highlighted in blue boxes.  Also plotted are the 10 and 40 week simple moving averages:

tan_20121226

I found this interesting as I pretty much gave up on this industry but it is hard to ignore this statistic and it may be worth it to scour the solars and look for setups.  Below is a table courtesy of The PPT (my preferred market engine) that highlights the solar industry and those stocks within.  The stocks are sorted by Hybrid Score which is a measure of fundamental and technical strength.

ppt_20121226

Below is a FinViz link to the those stocks and they are sorted by 3-month average volume:

Solar stocks sorted by 3-month average volume

With this information I am going to go through some of these solars and look for stocks that are setting up on the chart with the same beginning of the year performance patterns.  Then I will use The PPT with those stocks and look for those that have favorable seasonality data.

Liking the Agriculture Play into 2013 on Technicals and Seasonality

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In some conversation with newly tabbed and well deserved bloggers to iBankCoin (Rhino & Raul3), we were talking the agriculture industry.  I was thinking about this industry in the past couple days as it saw good momentum in the year and was talked about by many through media and social media in mid-2012.  I also found out that Raul3 wrote a post on the 23rd about this industry titled “Are Farmers Investing For A Bumper Crop?“.

On the morning of Dec 23rd I decided to look through this industry and chart some of the more well-known companies that are related to the agriculture play.  While in some great trading conversation it was highlighted by these distinguished gentlemen to take notice to the seasonality of these agriculture plays.  While charting on Sunday Dec 23rd, I did not look at seasonality but just pulled them up to look at.  Needless to say I love the seasonality here, especially pertaining to February a huge month for gains based on enough data points to make me confident.

When charting I first went to CORN as this was the main talk-of-the-town as it saw a parabolic move  starting in June.  You can see the chart below w/my chart annotations (all from Sunday, Dec 23rd):

  • CORN –  weekly chart, 44 looks like good level to accumulate, support zone couples w/50% fib of 2012 parabolic move

corn_20121223

Next you will see some chart annotations of some of the agriculture plays I charted with notes:

  • SMG – note the Relative Strength, like the small basing under 44 & 200sma, Fri volume 87.8% above avg

smg_20121223

  • MON – strongest ag play in relation to % off 52wk high (-0.48%), volume 50.8% >avg on Friday, like on pullback of 1pt

mon_20121223

  • MOS –  like this setup, looking for 3rd leg up, prior b/o supported w/volume, stop little below last swing low

mos_20121223

  • CF – stock lifted on drop to 200sma but little volume, thinking we get below this time, like 190 level on weekly

cf_20121223

Getting Long the Gun Trade with Options

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It’s no secret that the recent sorrowing news of Newtown has taken a toll on the gun stocks of RGR (Sturm, Ruger & Co.) and SWHC (Smith & Wesson Holding Co.).  The stock that I want to focus on here is RGR namely for its previous momentum and potential for short covering if it were to make an upside move.  Right now it is a story stock and is not trading on fundamentals or technicals but mainly on “I want out now”.

RGR is down -32.46% off its recently attained 52 week high.  Since it reached its 52 week high it has sold off.  Normally I do not like to take part in story stocks.  But I think there may be an opportunity here in RGR looking at the long-term chart, potential for a short squeeze, and the ability to take advantage of any upside move with some buffer.  RGR is still a fundamentally sound stock (although I do not trade off that ) but I also like the fact that 48.38% of the float is short with 16.53 days to cover.  Below is a technical and fundamental data screen shot courtesy of FINVIZ:

Below is a weekly chart:

The trade that I am looking at is an options trade that is not risk-defined.  The trade is a bull risk reversal.  I like to use these as stock substitutes at levels of where I believe I get a good purchase price on the stock but it also takes advantage of an upside move if that level is not reached by option expiration.

The trade that I like is the Jan13 35.5/45.5 Bull Risk Reversal.  With this I am selling the Jan 35.5 put and buying the Jan 45.5 call for a 0.05 credit.  The important thing to remember with these is that you are willing to be long stock.  With this trade I am:

  • willing to be long RGR if it closes below 35.50 on January expiration (Jan 18)
  • will receive a $5 credit to my account if it closes between 35.50 and 45.50 on January expiration
  • have the potential for unlimited upside

Below is the Risk Profile of the trade:

Right now thinkorswim is showing a buying power effect of 452.51, so this is the amount that I would need to put up in margin in order to put this trade on, keeping in mind that this will fluctuate with price.  One could also do an outright put sale with the same Jan 35.5 put for a credit of 0.95 (0.90 more than the risk reversal).  The reason why I don’t like this trade is that it limits my upside by the sale of the put while still taking on the same downside risk of assigned stock.  So with the call kicker in the bull risk reversal, I am taking more advantage of an upside move if it were to occur.  Hopefully this helps in some way and shows how one can use options to take advantage of stock at a discount or take advantage of an upside move in between the time of the trade and options expiration.

When former momentum names get beaten down like RGR has, one of my favorite things to watch in the options market is for put sales in size.  When you see big blocks of put sales that is hinting to me that institutions are willing to get long that name at that price or take advantage of stalling/upside action.  For example if I saw a 1,000 block of options trade at 35.5 in RGR, that would give me more confidence in this trade as it is telling me that an institution is willing to be long 100,000 (1,000 x 100) shares of RGR at a cost basis of 34.55 (35.50 – 0.95).

Earnings Trade Idea: Priceline

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Priceline reports 2/26 AMC.  Below is a history of PCLN EPS/Revenue estimates and actual reported numbers.  PCLN has a history of beating on EPS and revenues except for a couple misses in 2012 and one in 2011.

pcln_0226c

Looking at competitors of PCLN that have recently reported can give us some insight on expectations of price action (earnings data from StreetInsider):

  1. EXPE – EPS (miss) revenue (beat); opened down -1.61% and closed -2.67%
  2. TRIP – EPS (beat) revenue (beat) ; opened down -9.21% and closed -7.14%
  3. OWW – EPS (miss) revenue (beat); opened  up 0.37%  and closed +16.67%
  4. TZOO – EPS (beat) revenue (beat); opened up 4.11% and closed +24.31%

From a competitor standpoint it was a mix on EPS but all beat on revenue.  The opening move seemed fairly mute except for TRIP, which saw buyers and hit highs within the first 30min of trading.  PCLN was talked about stock on 8/8 when it saw a big gap down and closed near the lows.  In this report it missed on revenues but more importantly it guided down for Q3’12 EPS (to which it ended up beating on Q3 release).

For further explanation of the excel tables and data in them please refer to this post.

pcln_0226b

Looking at the Augen StDev 1min After Open average it is showing 3.75.  I like to take this multiplied by the current StDev Move Before Earnings which is showing 13.79.

3.75 * 13.79 = 51.71; this is my expected point move based on prior price action and volatility movements into earnings.

The next table shows implied volatility (IV) moves and looks at the ATM straddle to see what the option market is pricing (I prefer to use the bid for purposes of the worse possible fill).  On the far right the green cells represent a win selling the straddle and the red cells represent a loss):

pcln_0226d

Looking at the data the 2 most recent earnings saw some of the biggest moves on a percentage basis and we are right about where we were back on the 8/7 earnings release in which PCLN saw its biggest move.  Some other notes:

  • Straddle (going off bid price) is pricing 7.2% move
  • ATM Call IV is low comparing to past
  • Except for 2 prior earnings the straddle sale has been very profitable and alternated quarters between a win or loss

To me selling volatility doesn’t seem like the better trade here.  But I also think that the two prior earnings moves has many with that observation and I like to think when things become too obvious the opposite can happen.

So is volatility a sale?  Given the data its a no in my opinion but now that a big move is expected, I believe the opposite will happen.  Also the competitors stats have me leaning towards a volatility sale as well, especially when they have had previous big gaps on earnings yet recent release is fairly muted from close to open.    I definitely would not sell a straddle unless you can afford a big loss.  I personally like selling an Iron Condor (managed risk vs straddle sale).

Looking at the chart (notes on chart):

pcln_0226

The chart above has yellow dashed lines showing where I want PCLN to stay within into Friday expiration.  The trade I like:

Sell March1 620/625/735/740 Iron Condor for 1.92 credit, risk $308.

Below is the risk profile with red dashed lines representing a 10% move.  In this trade I make a profit (at Friday expiration) if PCLN stays within -7.2% to the downside and +9.7% to the upside (all going off EOD data 2/25/2013):

pcln_0226a

Also you could come in on those strikes for a lower risk, lower probability trade.  I like this trade as I am looking for volatility to be a sale and look for the price to stay contained.  If I price action goes against my thoughts/expectations then this trade will probably be a loser.  Personally I trade and would recommend trading earnings accepting a 100% loss as earnings trades are a gamble in where all you can control is your risk.

Trade Idea: LVS for the Upside and Low Risk with Options

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While I was absent from the markets on Friday there seemed to be much buzz about LVS in the social media space and across the options market.  Much of the action in LVS options is attracted to the March and May option chains.  A picture of the March chain is below:

lvs_0222

This to me looks like a ratio spread to be confirmed by looking at open interest on Monday.  In this spread the trader is buying the March 52.25 calls and selling twice as many March 55 calls for a net debit 0.69c.  Also there was action in the May options chain as well.  There was a big block of 17,397 calls on the ask for a 2.05 debit.  All together the May 52.5 calls saw volume of 27,245 contracts vs open interest of 282.  A picture of the T&S can be seen below:

lvs_0222b

Now that the options action has set the alert, it is time to look at the chart to see if the technicals align with the action:

lvs_0222c

In the chart we can that LVS has been in a downtrend (annoted by red bars) with a reversal bar (green bar).  If LVS breaks above the high of the green bar there is a probability for a continued long trade.  If it breaks below the low of the green bar then the downtrend is likely to resume.  Note that this is all short-term price action in timeframe of a swing trade.  On another note for the bullish side LVS saw a nice hammer candle on the 100ema on volume above average that was confirmed by Fridays candle on volume above average.

So what’s the trade?

In this scenario I like to look at the recent option action, especially the ratio spread.  In this trade the trader is looking at the following risk profile with March expiration in mind:

lvs_0222dIn following this trade I would be looking at upside for LVS as this big trader is looking for it to close between 52.43 and 57.57 at March expiration.  The furthest red-dashed line to the left represents current price.  This risk profile combined with the May action as annotated above has me leaning bullish in LVS.

My trade recommendation is an upside March call butterfly spread.  I personally would trade the same ratio spread but for margin purposes I believe the butterfly spread offers much of the same opportunity without the same margin requirements.  I like the March 52.5/55/57.5 call butterfly for a 0.19c debit (max loss $19).  This captures approximately the same range for a reduced cost.  Risk profile can be seen below:

lvs_0222e

I really like this trade from a risk:reward standpoint and that it actually follows the big trade that was put on in the March ratio spread.  As always this trade is based on my thoughts and the individual trader is responsible for his/her decisions.

Was Last Night A Catalyst For These Stocks

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Going through the news today I read that President Obama signed a cybersecurity executive order, which was also mentioned in last nights State of the Union speech.  You can read more from SlashGear but it will consist of:

“The executive order will lead to the creation of a group led by the feds to work with private companies in the creation and implementation of voluntary standards. This follows an attempted cybersecurity bill that was put forth last year and that ultimately died in August. The Obama administration stated that this executive order is only the beginning, and that it would continue to push for an approved cybersecurity bill.”

During the speech he mentioned the continuous and rapidly growing cyberattacks from foreign nations and companies trying to dismantle and disrupt our security and economy.  Reading this had me think of some cybersecurity  stocks which as an industry really haven’t performed this year and this news bit may be a small catalyst to jump start some performance.  For this I went to The PPT and did a Company Search with the keywords “cyber security” and “cybersecurity” and came up with the following 15 results (sorted by market cap):

ppt_0213

Below I have imported these to FinViz so that you can also get a view of the charts and click here to sort to your liking:

finviz_0213

Also I did not read through all these company descriptions but from a glance I can see that most of them pertain to cybersecurity.  I can also see ESI (an educator) in there which probably got flagged due to its cybersecurity programs.  As always make sure you do your own verification.

Position Updates – AAPL, AMZN, V

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Yesterday  the bears definitely had the upper hand in the morning only to see the selling subside and the often seen grind up continued through the afternoon.  Much of the excitement was in the afternoon surrounded by none other than news concerning Apple (AAPL).  Overall a fun day that is still seeing individual stocks set-up and break out.

I personally am still light in the portfolio.  I posted previously about my Amazon (AMZN) and did get filled and exited that position Wednesday as I put a note out on the stream.  I exited as I did not like how AMZN cut through 265 on volume so I was looking to take advantage of any up swing by placing an order at the mid-price to which I got filled.  Below is my post to the stream and orders:

Capture

 

amzn_20130208

 

As I was already out of the position, yesterday saw a move down to 255 and did put this position underwater about -$250.oo give or take but price action brought it back up to slightly positive .  Either way I was out so moving on.  I did try to put on another similar position for a 15c credit capturing the 245-255 range but never got filled as my entry marked near a bottom in the price action.

I remain in the AAPL position as shown in this post.  I haven’t played AAPL in a while and if interested into why I got in it is stated in the linked post.  It is a March 460-480-490 Call Broken Wing Butterfly for a debit of 4.25.  Yesterdays news definitely helped this position.

Then I put on a short position.  Yes I feel like one of these move to the downside is going to stick shaking some further weak bulls.  Yesterday I put on a short position via options in Visa (V).  It came out with earnings Feb 6th AMC and beat on EPS and revenues.  The action in Visa yesterday had me believing a pause or slight pullback is due after a very consistent run as of June 2012.  I am looking for a pullback to the 50sma (blue line) which coincides with a gap support area around 154-155.  Visa has pretty much been in a basing pattern since the new year gap and I am looking for a pullback to at least the bottom of this base.  Also the Relative Strength Average (purple line in blue highlighted box) is beginning to roll over, something we have not since but only once during this recent run.

v_20130208

With this information I entered into a Mar/Feb 155/150 Put Diagonal spread for a 2.50 debit.  This position will provide a return of approximately 30% if 155 is hit and will provide near a max return if the gap is filled, all being around next week Friday expiration.  I wasn’t too concerned about the greeks when putting this on as I am looking more for direction.  But  I also wanted to take the greeks in consideration and wanted to take advantage of any increase in IV so the Diagonal gave me what I wanted:

  • Delta – than a Calendar spread while creaqting profit from downside move
  • Theta – no big time decay (becomes theta positive w/downside move) as seen with a single call position
  • Vega – wanted positive vega so that an increase in volatility will benefit the position

Below is a risk profile of the current trade:

v_20130208a

Friday’s Hybrid Movers w/Volume Score

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One of my favorite scans to run in The PPT is daily hybrid movers with an accompanying higher than average volume score.  @RaginCajun does a fine job throughout the day charting hybrid movers and linking them to FinViz.  I like to look at hybrid movers and also add the volume element.  With this screen my goal is to find some more of the under-followed names.  With this I believe they may be starting to get accumulated by funds and being relatively unknown, aren’t far in the move that they may take.  That is my opinion anyway and this doesn’t always mean they they will have they will have that upside move I am looking for.  But, it should be noted that they were a top hybrid mover with volume.  I then like to look at the technicals to see how the chart structure looks and filter the best candidates for an upside move.

Below are some of the highlighted stocks on Friday that I posted to Twitter and with notes and FinViz link in company name:

1) WX (WuXi PharmaTech (Cayman) Inc.) – volume supported the b/o above 15, like the pullback to the 50sma

 

2) LFL (LAN Airlines S.A.) –  regional airline w/volume coming in and 12+ days to cover, RS avg starting to trend up

 

3) GLF – (Gulfmark Offshore, Inc) – basing just below 200sma, like the pattern & volume off support, note the RS avg slope

 

4) GGC (Georgia Gulf Corp.) – seeing accumulation in Feb 50 calls, may be hedging short w/22.5% short float w/8.85 days to cover

 

 

 

Why I Initiated a Short Position on the Russell 2000 w/Options

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It was hard not to get caught up in the euphoria of the market yesterday and the day before if you were long positions already   There were many comments on the stream yesterday and today about chasing and I would agree.  That comment can also be broken down into size as well.  Sure it is unwise to put on a full long position at these levels but if you were to initiate a 33% or 25% position (depending on your scale model) then you may have a great trade.  As for me I have no long positions at this moment but initiated a 1/2 size short position yesterday on the Russell 2000 (RUT).  I believed things became a bit overextended and I was watching two metrics I like to pay attention to:

  • percent above the 10 EMA (1st indicator pane) looking for a 3% extension 
  • points above the 20 SMA (2nd indicator pane) looking at the 30pt mark for warning and 40pt mark for an extreme

I like to look at these two indicators for times like this when the chase is on.  Also when they breach the points it is a warning and a possible time to initiate a position for a trade in the opposite direction.  We all know that overbought or oversold can become overbought-er or oversold-er (please appreciate the humor) so the time in where I will add to the trade is when the RUT trades back under those points.  Below is a 1 year chart with blue highlighted boxes of where the RUT first breached these points and then traded back under (notes on chart):

rut_20130103

The option trade that I chose was the Feb/Jan1 850 Put Calendar for a 13.08 debit.  First here is a chart of the RVX (Russell 2000 VIX) with notes:

rvx_20130103

With that I was looking for a pullback option strategy that took advantage of a pop in volatility and the strategy that came to mind was the Put Calendar as this took advantage of a pullback and was positive vega.  I did screw up in putting this position on in that I sold the Jan1 option (not much time or benefit) instead of selling the next week Jan2 option.  I only collected 0.15c on that Jan1 option instead of the near 2.00 I could have collected for the Jan2 option.  A mistake on my part.  I do believe that it can be recoverable and I do not have a full position on either so the dent to my account is manageable.  But this is a good lesson in taking the time to slow down and actually confirm the order when that pop-up window asks you.

Digging Further Into the Gun Trade, Watch Ammo and Supplies

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The post is broken down into the following order:

  • prior trade in Sturm, Ruger & Co. (RGR)
  • news that drove me to current research
  • personal experience
  • stock of choice

Prior trade in Sturm, Ruger & Co. (RGR):

Its no secret that the gun and gun related product trade is in full effect right now with recent news of the shootings that it seems news can’t even keep up with.  I recently wrote about a trade opportunity in Sturm, Ruger & Co. (RGR) after it saw selling.  My attention was brought to this stock after the Newtown tragedy.  Also guns were a momentum long play off political debate and then saw selling.  The Newtown school shooting brought even more attention and these stocks saw further selling into where I believe the news overruled the trade.  In the post “Getting Long the Gun Trade with Options” I believe the RGR trade was of low risk if you were willing to be long the stock below 35.50 (currently trading at 43.27).  You were long the equivalent of around 46 shares (per 1-lot) on a margin requirement of around $450.  Right now that trade is showing a gain of $77.50 (+17%) if you were filled at the trade recommendation.

News articles: 

With that aside I read some interesting articles that talk about the demand for ammo and gun supplies now.  These articles are titled “Ammo Suppliers Everywhere Are Reporting Shortages From A Huge Surge In Demand” and “Buy the bullet: Rush on ammo sales“.  These posts have the following information:

  • sold more than 3.5 years worth of magazines in a 72-hour time span
  • UT Arms, like many retailers, is sold out of 30-round magazines
  • many supplies for the AR-15 are out of stock
  • employee of Dick’s Sporting Goods said that “it seems like more people are coming in than ever before” looking for ammunition and other accessories

Personal experience:

Those were some snips that I pulled from the articles.  Needless to say I believe ammo prices will go up and as a hunter that hurts.  Not even talking about rifles I have witnessed the price of ammunition go up for shotguns as well. One thing I buy a lot of is 12-gauge  2 3/4in 6-shot heavy loads.  The best prices for these are at Wal-Mart (WMT) as they have not marked up the price much.  But when I could buy a box of 20 last year for 11.96, I am now paying 2 dollars (16.7%) higher in just over a year.

With reading the post and seeing the trend of rising ammunition prices I am thinking more hunters might go into reloading their own shells.  Even I am thinking of it.  I’ve stated the price for shotgun rounds but I have paid as high as $50 dollars for a box (20 rounds) of rifle shells.  Now one might say I don’t see why you need to shoot 20 rounds of ammunition at an animal.  I agree but also note that hunters are concerned about the zero of their rifle every year (at minimum) and it may take at a minimum of 10 rounds to know if my rifle is hitting where it is supposed to.

Stock of choice:

In looking for “reloading” stocks I turned to The PPT and used the probably under-utilized search function and typed in “reloading”.   With this two stocks pulled up, Olin Corp. (OLN) and Alliant Techsystems Inc. (ATK).  Of the two I decided to look at ATK due to its prior upside gains and chart structure as OLN has more of  range-bound chart.  Below is a 10 year weekly logarithmic chart with some trend lines, the 10 & 40 week averages, and volume at price:

Note the relative strength and how it has crossed above its moving average of the lows.  Also it is currently against some resistance but I believe it is a buy on a pullback and will take out that resistance making it new support.  It is also in a volume pocket to where 70 seems like comfortable target.  Now it may see some selling/profit taking as it’s over 40% off its 2012 lows, but the formation of the right shoulder of an inverse head and shoulder would be a buy if it were to trade below 55 or around that level.  Below is a zoomed in chart with same parameters:

atk_20121227a

 

When a Lagging Industry Can Perform

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In reading this post from @The_Real_Fly he provided a table of today’s leading industries.  None other at the top was Solar.  I honestly can’t remember the last time I traded a solar stock and I really have no interest in this industry yet.  First Solar (FSLR) was always a fun one to trade but for me that was back when it was above 100.

With Solar being the lead percentage gaining industry today it got my interest as it has been a poor performer this year and previous years.  Using TAN (Guggenheim Solar ETF) as a proxy for the solar industry (holdings), it is down over -37% YTD.  In 2010 it dropped over -28% and it 2011 it dropped over -66%.  Despite these horrible year statistics, something that stood out was its beginning performance on the year usually between 6-7 weeks.  Below is a weekly logarithmic chart (preferred in long time frames) of TAN and you can see this beginning performance highlighted in blue boxes.  Also plotted are the 10 and 40 week simple moving averages:

tan_20121226

I found this interesting as I pretty much gave up on this industry but it is hard to ignore this statistic and it may be worth it to scour the solars and look for setups.  Below is a table courtesy of The PPT (my preferred market engine) that highlights the solar industry and those stocks within.  The stocks are sorted by Hybrid Score which is a measure of fundamental and technical strength.

ppt_20121226

Below is a FinViz link to the those stocks and they are sorted by 3-month average volume:

Solar stocks sorted by 3-month average volume

With this information I am going to go through some of these solars and look for stocks that are setting up on the chart with the same beginning of the year performance patterns.  Then I will use The PPT with those stocks and look for those that have favorable seasonality data.

Liking the Agriculture Play into 2013 on Technicals and Seasonality

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In some conversation with newly tabbed and well deserved bloggers to iBankCoin (Rhino & Raul3), we were talking the agriculture industry.  I was thinking about this industry in the past couple days as it saw good momentum in the year and was talked about by many through media and social media in mid-2012.  I also found out that Raul3 wrote a post on the 23rd about this industry titled “Are Farmers Investing For A Bumper Crop?“.

On the morning of Dec 23rd I decided to look through this industry and chart some of the more well-known companies that are related to the agriculture play.  While in some great trading conversation it was highlighted by these distinguished gentlemen to take notice to the seasonality of these agriculture plays.  While charting on Sunday Dec 23rd, I did not look at seasonality but just pulled them up to look at.  Needless to say I love the seasonality here, especially pertaining to February a huge month for gains based on enough data points to make me confident.

When charting I first went to CORN as this was the main talk-of-the-town as it saw a parabolic move  starting in June.  You can see the chart below w/my chart annotations (all from Sunday, Dec 23rd):

  • CORN –  weekly chart, 44 looks like good level to accumulate, support zone couples w/50% fib of 2012 parabolic move

corn_20121223

Next you will see some chart annotations of some of the agriculture plays I charted with notes:

  • SMG – note the Relative Strength, like the small basing under 44 & 200sma, Fri volume 87.8% above avg

smg_20121223

  • MON – strongest ag play in relation to % off 52wk high (-0.48%), volume 50.8% >avg on Friday, like on pullback of 1pt

mon_20121223

  • MOS –  like this setup, looking for 3rd leg up, prior b/o supported w/volume, stop little below last swing low

mos_20121223

  • CF – stock lifted on drop to 200sma but little volume, thinking we get below this time, like 190 level on weekly

cf_20121223

Getting Long the Gun Trade with Options

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It’s no secret that the recent sorrowing news of Newtown has taken a toll on the gun stocks of RGR (Sturm, Ruger & Co.) and SWHC (Smith & Wesson Holding Co.).  The stock that I want to focus on here is RGR namely for its previous momentum and potential for short covering if it were to make an upside move.  Right now it is a story stock and is not trading on fundamentals or technicals but mainly on “I want out now”.

RGR is down -32.46% off its recently attained 52 week high.  Since it reached its 52 week high it has sold off.  Normally I do not like to take part in story stocks.  But I think there may be an opportunity here in RGR looking at the long-term chart, potential for a short squeeze, and the ability to take advantage of any upside move with some buffer.  RGR is still a fundamentally sound stock (although I do not trade off that ) but I also like the fact that 48.38% of the float is short with 16.53 days to cover.  Below is a technical and fundamental data screen shot courtesy of FINVIZ:

Below is a weekly chart:

The trade that I am looking at is an options trade that is not risk-defined.  The trade is a bull risk reversal.  I like to use these as stock substitutes at levels of where I believe I get a good purchase price on the stock but it also takes advantage of an upside move if that level is not reached by option expiration.

The trade that I like is the Jan13 35.5/45.5 Bull Risk Reversal.  With this I am selling the Jan 35.5 put and buying the Jan 45.5 call for a 0.05 credit.  The important thing to remember with these is that you are willing to be long stock.  With this trade I am:

  • willing to be long RGR if it closes below 35.50 on January expiration (Jan 18)
  • will receive a $5 credit to my account if it closes between 35.50 and 45.50 on January expiration
  • have the potential for unlimited upside

Below is the Risk Profile of the trade:

Right now thinkorswim is showing a buying power effect of 452.51, so this is the amount that I would need to put up in margin in order to put this trade on, keeping in mind that this will fluctuate with price.  One could also do an outright put sale with the same Jan 35.5 put for a credit of 0.95 (0.90 more than the risk reversal).  The reason why I don’t like this trade is that it limits my upside by the sale of the put while still taking on the same downside risk of assigned stock.  So with the call kicker in the bull risk reversal, I am taking more advantage of an upside move if it were to occur.  Hopefully this helps in some way and shows how one can use options to take advantage of stock at a discount or take advantage of an upside move in between the time of the trade and options expiration.

When former momentum names get beaten down like RGR has, one of my favorite things to watch in the options market is for put sales in size.  When you see big blocks of put sales that is hinting to me that institutions are willing to get long that name at that price or take advantage of stalling/upside action.  For example if I saw a 1,000 block of options trade at 35.5 in RGR, that would give me more confidence in this trade as it is telling me that an institution is willing to be long 100,000 (1,000 x 100) shares of RGR at a cost basis of 34.55 (35.50 – 0.95).

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