The market is trading lower this morning and the Vegas over/under is 8000 for the Dow. I got 50 cents on the under. The index slid nearly 200 points at the open but has cut that in half trade which puts us at 8009. There are a few bright spots in the market but the overall mood is that the bears won this week and the bulls are going home for the weekend to regroup.
The bank stocks are killing any momentum the bulls gather as Capital One Financial (COF, $19.06, down $2.87) joins the latest list to report lousy earnings. The company had to write-off another billion for bad loans and posted a worse-than-expected loss for the quarter. Looks like the default rate for people who can’t pay their credit cards is rising…not a good sign. And just how inflated were the put options for COF you ask? The February 20 puts (COFND, $2.85, up $0.20) are only up 7% on the news while the stock is down 11%.
In other words, the price for the COF put options were so inflated and it was almost a given that the options would quickly be in-the-money when COF reported earnings. I’ll give you a perfect example of how this works and why anyone who bought these options overpaid.
Home Depot (HD, $21.85, down $0.12) is currently trading where COF closed at yesterday. The Home Depot February 20 puts (HDND, $0.71, up $0.02) are trading at 70 cents and if Home Depot were to suddenly fall 10%, these options would double. We teach you how to look for these type of things in our training course and videos…
Geron (GERN, $8.03, up $2.82) is getting a huge pop today and is up 50% on news that they got the go ahead to start human trials using stem cells intended to treat severe spinal cord injuries. The February 7.50 calls (GQDBU, $1.40, up $1.30) is up a whopping 1300% on the news. Don’t get caught in the hype, it will be years before anything material comes from this.
Intuitive Surgical (ISRG, $94.61, down $1.40) traded as low as $87 this morning and has made a nice recovery. The February 90 puts (AXQNR, $3.80, down $1.30) hit a high of $7.20 but have been hammered on the stock’s quick rebound. This shows just how much you have to manage your positions in this market. We were out at $6.50 and while you could have squeezed the trade for a few more points at the open, it just wasn’t worth it as you can see.
And as fate would have it…The gold trades were good to us for two days but the honeymoon is today. I planned a “three-day” marriage which turned into 2 days and we got some nice returns. However, Barrick Gold (ABX, $39.03, up $3.45) and Goldcorp (GG, $28.95, up $2.32) are having monster days.
The Goldcorp February 32.50 calls (GGBZ, $1.10, up $0.50) were profiled at 40 cents and the Barrick Gold February 40 calls (ABXBH, $2.65, up $1.40) could have been picked up for 90 cents as both are up nearly 200% from those entry prices. If you ignored my bonehead advice (sly grin) and held on for another day, you made another 100%. When I blogged “Gold Back On Radar” Wednesday morning, I knew something good was going to happen with gold this week.
Here were my thoughts:
“Over the last couple of years, gold has had a pretty good run from late January until the end of February. In November 2008, gold had dipped to around $750 an ounce and we jumped on the train for the way back up. We set stops and were out in less than a week.
Look, I’m not sure if gold is ready to challenge $900 but the move in gold is hard to ignore with many of the banks and the currency markets still unsettled. I don’t trust Newmont but Goldcorp and Barrick Gold are a possibility.” —
Man, I love it when history repeats itself. Gold is up $43 to $903/ oz. and looks to be knocking on $900’s door. If you haven’t gotten off the bus, Gus, close the trades though. Or at least half the trade. It would be hard not to take 200% off the table with the weekend coming up.
Anyway, I’ll be back this weekend with the Weekly Wrap and a few thoughts on Genentech (DNA, $83.10, up $1.40).
If you want to be added to the mailing list for the Weekly Wrap or are interested in really learning how to trade options, shoot me an email.
Rick Rouse
Rick@OptionsMentoring.com
