Market Notes - Strangle Option Play Up Sharply - Momentum Trades : Momentum Trades

Market Notes – Strangle Option Play Up Sharply

As we head to lunch, here’s some tidbits on some of the stocks we are currently following.

On September 2, I did a piece on McDonald’s (MCD, $63.88, up $1.46) saying the company would be reporting great same-store sales. At the time, the stock had lost its hype because the Olympics had finished and Wall Street grew bored with the stock. It was a great time to go long some calls options and that we did. Although these calls doubled shortly after I mentioned them, then traded lower, today is another payday. Same-store sales rose 8% in August.

The September 65 calls (MCDIM, $0.65, up $0.30) are up 86% this morning and could have been bought for 40 cents on 9/2. The October 65 calls (MCDJM, $1.65, up $0.45) are up 38% and were going for $1.25. This is the second time the market is begging you to take profits so manage your positions accordingly.

Research in Motion (RIMM, $104.27, up $1.60) has rebounded nicely and has traded as high as $106 today. Apple (AAPL, $158.40, up $0.48) is introducing new and cheaper iPods in a couple of hours.

Lehman Brothers (LEH, $10.18, down $3.97) hit a low of $8 earlier in the session after buyout talks with the Korea Development Bank have ended. I’ve been hesitant to make an option trade on Lehman but a strangle is looking more and more like a possibility. If you want to pull the trigger on one here is the play. The October 12.50 calls (LYHJV, $2.41, down $1.44) and the October 7.50 puts (LYHVU, $2.34, up $1.55) look like the perfect fit. As sure as the sun will come up tomorrow, you can almost bet Lehman is going to move $5 in either direction by October, if not within the next day or two.

The DryShips (DRYS, $53.30, down $4.12) October 60 puts (DQRVL, $9.70, up $3.20) continue to soar. If you recall, we did a strangle trade on DryShips on August 25. We sold the calls shortly after the trade and the puts were trading for $2.60 at the time. They have more than tripled and are working on a “quad”. As you can see, some of the strangle trades we have been using are providing us with monster returns.

Rick Rouse
Rick@OptionsMentoring.com

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