The market is trading higher, led by financials, on renewed optimism the new Obama administration is moving quickly to stabilize the banking sector. Goldman Sachs (GS, $86.00, up $7.74) and JPMorgan (JPM, $27.26, up $2.20) are having a monster day as both stocks are up nearly 10%. The Dow is up triple-digits while the Nasdaq and S&P 500 are up 3% and 2.5%, respectively.
More importantly, the Goldman Sachs February 85 calls (GSBQ, $7.00, up $4.15) are up 140% from yesterday’s closing price. Yeap, a 10% move in a stock can get you a 100% return on the right option. We didn’t get that much but we are showing gains. The calls opened at $5.35 but were trading for $4.55 twenty minutes later. I have talked about not buying the hype at the open in the past and hopefully you remembered this if you got into the trade. Either way, if you got in at the open, you’re up 30+%. If you got in for under $5, then your gains are 50%.
JPMorgan opened at $27.19 and fell back to $26.34 before resuming its uptrend. The February 26 calls (JSABI, $3.00, up $1.30) opened at $2.50 and traded as low as $2.35. At $2.50, your profit is 20%.
I also mentioned Citigroup (C, $4.20, up $0.65) and the February 4 calls (CBW, $0.68, up $0.30) which are trading where they opened up at. I didn’t like this one as much but I realize some of our readers like playing the cheaper options. They have traded as high as 75 cents but the stock needs to get near $5 to make some good money with this one.
Now, I can’t tell you where we go from here but as I have commented on many times in the past, these are sweet profits in a volatile market. If any mutual fund manager could post a 20% gain for their clients, they would be crowned the next Peter Lynch on Wall Street. We make that in a day. So if you invested a $1,000 and made $200, think about that for a minute. Even better, if you got in the Goldman trade, your $1,000 has made you $500 in three hours. That’s where we are.
All of these options could continue higher but remember we’re gonna get a statement from the Fed in a little bit. Wall Street will be watching for signals of any “nonconventional methods” of fighting the credit crisis after the Fed ends its scheduled two-day meeting.
The last hour of trading could be a doozy so protect your profits if it looks like the tide is turning.
Rick Rouse
Rick@OptionsMentoring.com
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