Ditto. The market is up ANOTHER 400 points shortly after lunch and for the week the Dow is actually positive. In a week that will go down as one of the most volatile we have seen in quite some time, the market has rallied in stunning fashion on more good news that the government plans to wipe off billions and billions of bad debt off the banks books.
Another factor helping to propel the market higher is the new ban on short selling. I knew the short sellers would eventually get nabbed and today they are paying a heavy price. The SEC placed a temporary ban on the short-selling of nearly 800 financial stocks.
Short-selling is when you think a stock’s price will fall and you borrow the stock from someone else then sell the shares in the open market.
I haven’t even mentioned that today is “quadruple witching” day.
In fact the news is so good right now I can’t believe I waited this long to tell you about Morgan Stanley (MS, $29.60, up $7.05) and Wachovia (WB, $19.40, up $4.90).
Morgan went on a wild ride yesterday and by the afternoon the stock had dipped to a low of $11.70 after hitting a high $24.82. Stop and think about that for a minute. Morgan went from $24 to $12 to now nearly $30 in 24 hours…
I profiled the October 20 calls (MSJD, $10.90, up $3.70) which were at $5 and have now doubled and traded as high as $13.40. The January 25 calls (MSAE, $8.85, up $3.95) were at $4.00 and were over $10 earlier today. I don’t now much higher Morgan can go because the run-up has been huge. You could set stops at $10 for the October calls and easily get taken out due to volatility. You could set one a $7 to allow for some of this but also risk not taking a “double” off the table. Note: I always set stops at a double once the trade is officially over 100%.
Wachovia shares are up over 35% today and the longer-term call options we profiled are also doing well…real well. Wachovia actually OPENED at $23.86 and hit $24. I was pounding the table, beating the drum, and hollering at the top of my lungs that Wachovia was a serious buy-out candidate. The returns on the call options are also incredible.
The January 15 calls (WBAC, $5.80, up $2.48) were at $1.40 and have traded as high as $9.00. The January 20 calls (WBAD, $2.50, up $1.05) were at $0.65 and have traded as high as $4.50.
Obviously you should have closed some of these positions today to protect your profits and keep your bankroll growing. I’ll be wriiting articles here on the blog starting this weekend and my goal is to educate you on numerous option strategies and tidbits on the market. We might even do a mailbag…send me your questions.
Enjoy the rally but don’t fall in love it. As option traders we trade both up and down markets and this rally is being fueled by throwing gas on a fire. How long it burns remains to be seen.
Rick Rouse
Rick@OptionsMentoring.com