AAPL-Bull Buys Call Spread
by Andrew Wilkinson - December 14th, 2009 4:26 pm
Today’s tickers: AAPL, GLD, XLU, AEP, CI, CHK, XEL, OSK, LLL, JAVA & BSX
AAPL – Apple, Inc. – A long-term bullish play on the iPod manufacturer suggests the price of the stock could skyrocket by July 2010. Apple’s shares increased more than 1% during the session to $196.96. It looks like one trader initiated a call spread in the July contract to position for a significant jump in the price of the underlying in the next seven months. The investor purchased 3,000 calls at the July 220 strike for a premium of 13.60 apiece, and sold the same number of calls at the higher July 250 strike for about 6.18 each. The net cost of the bullish play amounts to 7.42 per contract. AAPL’s shares must surge 15.5% from the current price in order to reach the breakeven point on the trade at $227.42. Maximum potential profits of 22.58 per contract are available to the investor if the stock jumps 27% to $250.00 by expiration in July.
GLD – SPDR Gold Trust ETF – A bullish risk reversal on the gold ETF today points to a rebound in gold bullion prices by expiration in February 2010. Shares of the GLD added nearly 1% during the trading day to stand at $110.23. One trader sold 9,650 puts at the February 110 strike for 4.70 each in order to partially finance the purchase of 9,650 calls at the same strike for 4.90 apiece. The net cost of the reversal amounts to just 20 cents per contract. Profits amass on the transaction if shares of the fund rally through the breakeven price of $110.20 by expiration day in February 2010.
XLU – SPDR Utilities Select Sector ETF – Shares of the exchange-traded fund comprised of common stocks of companies from the electric utilities, multi-utilities, independent power producers, energy traders and gas utility industries, increased 0.75% during the trading day to a new 52-week high of $32.08. The fresh high for the fund perhaps inspired the bullish options activity we observed on the XLU today. One investor banked profits on a previously established long call position in the January 2010 contract. The trader originally bought 5,000 calls at the January 29 strike for a premium of 92 cents apiece back on November 6, 2009, when shares were at $28.90. The investor sold the calls today for 2.95 apiece and took in net profits…
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Weak Weekly Wrap-Up
by Phil - November 21st, 2009 8:26 am
This chart says it all (thanks Jesse).
In last week’s wrap-up I said: "Since early September our upside targets for the indexes have been: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and nothing has happened to change our fundamental outlook for the better so the closer we get to those levels, the LESS comfortable we are taking bullish positions." I mentioned how tempting it had been to cash out all our longs and go 100% bearish when we hit 10,300. Our downside levels told us to wait until the 16th, when Monday’s move up was finally the last straw and we are out of the bull game (our last major Buy List was July 11th and most picks are up over 100%), probably for the rest of the year.
This chart shows you that the S&P is primed for a 5% correction back to 1,050. I don’t know why Jesse didn’t extend out the lower support line, which would take us right about to my pullback target of S&P 1,000/Dow 9,650. I stuck my neck out on TV two weeks ago, calling for a 10% correction to those levels but we’ve been playing both sides of the fence until this week, when I finally had to put my foot down on Monday, after having discussed cashing out for the holidays in Member Chat over the weekend. Our general plan this week was to cash out the winners and leave only longer-term, hedged bullish plays while adding more speculative downside plays for the short-term correction.
Why the change of heart? Well, something you don’t see on this chart but is pretty clear on the Yahoo monthly view, is that virtually all of the gains (ALL of them if you include the spikes) in the Dow for the ENTIRE month of November have come on single days each week. This week it was Monday (139 points), last week Monday (206 points) and Nov 5th was Wednesday (198 points). Take those days out of the run from our Oct 30th close at 9,712 and we’re up just 63 points to 9,975 despite there being only 1 losing day in the first week (11/3, down 16 points) of the month and one losing day in the second (Nov 12th, down 92 points). That is one super-flimsy way to build a "rally" don’t you think?
Getting 90% of our gains in on 3 days in 3 weeks indicates a certain lack of follow-through to these bullish market moves. I…
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Profit-Taking on Illumina, Inc. Options Illuminated
by Andrew Wilkinson - October 20th, 2009 4:18 pm
Today’s tickers: ILMN, USB, CCJ, BSX, VMED, SPY, GME & QSFT
ILMN – Illumina Inc. – The biotechnology firm’s shares slipped 3% today to $42.48. Profit-taking by one investor pushed the ILMN ticker symbol onto our ‘hot by options volume’ market scanner. It appears the trader originally sold 5,000 puts short at the November 35 strike for 95 cents apiece back on September 22, 2009. Today, the investor closed out the short position by buying the put options back for 25 cents each. Net profits enjoyed on the closing purchase amount to 70 cents per contract for a total of $350,000. Next, the investor reestablished a short put position by selling 5,000 puts at the November 40 strike for an average premium of 1.12 apiece. The full 1.12 premium may be fully pocketed by the trader if shares of ILMN remain higher than $40.00 through expiration.
USB – US Bancorp. – Options activity in the near-term November contract suggests at least one investor anticipates greater volatility in the price of USB shares through expiration. Shares of the financial holding company edged 1% lower this afternoon to $23.56. A long strangle play took place through the purchase of approximately 2,000 puts at the November 23 strike for an average premium of 65 cents each, and the purchase of 2,000 calls at the November 24 strike for about 73 cents apiece. The strangle cost the investor a net 1.38 per contract to implement. The transaction may prove to be profitable to the trader if shares of USB either shift above the upper breakeven point at $25.38, or if the stock moves beneath the lower breakeven price of $21.62, by expiration day. Volatility on USB rose 13% from an intraday low of 31% to a high of 35.5%.
CCJ – Cameco Corp. – The world’s second-largest producer of Uranium experienced a more than 5.5% rally in shares during the trading session to $31.31. Shares in a number of uranium companies rose after an Australian newspaper revealed BHP Billiton Ltd. declared force majeure on uranium and copper sales from its Olympic Dam mine. Force majeure is a contract provision that excuses a supplier from liability due to uncontrollable circumstances. In this case, a BHP mine in South Australia will be out of commission for at least a month due to mechanical difficulties. Investors expecting shares of CCJ to rally higher purchased near-term call options…
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All Fine on Friday – Drop, What Drop?
by Phil - September 4th, 2009 8:23 am
We are starting to love our stick!
From our first Alert of the day, at 9:47 we went bullish into the drop, selling the naked DIA $94 puts and covering our longer put plays fully. After picking TZA hedged ($11.15/14.32) and a short on COST (who had jumped 10%) it was all mooing with longs on MCO, ERTS, BSX and VZ but then a bearish play on GLD at $97.50 as, again, we didn’t think gold will hold $1,000. The market started a sell-off at 1:25 but took a bounce but, as you can see from David Fry’s chart, the S&P held 995 at 2:45 and at 3:07 I said to Members:
Volume right at 100M at 3pm. 140M is "stickable." Mr Stick stopped coming after he got hosed on Monday with someone(s) selling like crazy into the attempted closing pump but "they" jacked it up pre-market on Tuesday and got their money back Tues am at which point they les the market slide to (hopefully) get rid of the jokers who had the nerve to sell into the stick. After an almost 72 hour rest period, I think Mr. Stick is tanned and rested and ready to put a positive spin on this week into the holiday weekend. That’s my market story at the moment. I’ll be right if we get a move either into this close or possibly a pre-market pump into a Free Money Day tomorrow that jams us back to 9,500 on very low pre-holiday volume. Those DIA $94 puts are still $2.15 and I still like them as a way to play for a move up (short sale). The $95 calls came down to .69 as the bulls have lost faith and that makes them a fun play to get back into as well.
So far, my market story is looking pretty good and it’s a quick 150--point ride back to 9,500, which will be a tall order if Non-Farm Payrolls disappoint but looking at then Hang Seng this morning, which got the Grand Mother of all stick saves into their close (500 points in 45 minutes), I’d have to say pretty much anything is possible. This morning’s "rally" in the Hang Seng came off an announcement by authorities that China will raise the ceiling on foreign investments AND shorten the "lock-up" period on certain types of investments considerably. This came on the…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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