It’s been an exciting week and we have been involved in a bunch of good trades lately. The market has had its ups and downs but the trend for the week has been higher. The Nasdaq proved it wasn’t its first rodeo and is now positive for 2009. Yeap, the 58 point pop put the Nasdaq at 1,587 which is higher than the 1,577 close we got on December 31. The market peaked in the first week of January so the index is still off its highs for the year but the bounce we have been calling for has been powerful.
So far the market has followed the road map we had planned and now that we are here, we have to figure out some moves for next week. In the Weekly Wrap and all this week I have been talking about Dow 7,600-7,800 and that we needed the S&P to hold 800. I also expected Thursday’s uptrend but I’m not sure how we go into the weekend.
It is easy to be bullish right now but so is the rest of world. The current rally has everyone talking which could be good or bad. A lot of what has got this rally started was the institutional buying (mutual fund managers buying stock) and now that they have drove prices higher, we need to be careful of how things shake out from here.
But that’s for me and the Weekend Wrap to figure out…
As far as Friday, it seems like it has been somewhat “safe” to leave positions open but I only like to do that if I have made solid gains or really believe in the trade. Otherwise, we are looking for quick profits and going on to the next trade. Did you notice that as soon as Best Buy (BBY, $37.67, up $4.21) gave us a huge return, I set a stop 15% below the current price?
The Best Buy April 35 calls (BBYDG, $3.60, up $2.05) were at $4.70 when I sent the blog out on Thursday which was right before noon and I said to set stops at $4.00. The calls had hit a high of $5 earlier in the session and by setting the stop at $4.00, you saved $400 if you bought 10 contracts. Yes, they could go higher on Friday and for the next three weeks for that matter but when you make 220% in a day then its hard to argue not to take profits off the table.
Family Dollar (FDO, $33.18, up $1.08) looks strong enough to hold over the weekend and the April 32.50 calls (FDODZ, $2.00, up $0.55) have nearly doubled from entry prices of $1.00-$1.10. Our target was $1.50 then $2.00 so technically this trade should have been closed. In any event, set stops at $1.40 to protect profits in case the market has a bad day Friday.
Since it is Friday, I thought I would share a story with those that are new to the blog.
The reason we trade options is to make money and there are days just like pro poker players where we have to “grind it out”. However, what brings us to the table everyday is the opportunity to win big pots and there are some out there in options trading that can make you an incredible amount of money. Take First Solar (FSLR, $150.39, up $16.41) for instance.
On Thursday, the shares opened at $137 and held steady for the first 90 minutes of trading and then took off. First Solar is on my Watch List but sometimes when stocks get over $100, the near-term “out-of-the-money” calls can be expensive. However, the way out-of-the-money options can be really cheap.
The stock started the week at $130 and traded as low as $122 on Monday and to a low of $109 on St. Patty’s Day. Obviously, the thought of the stock making a run to $200 never crossed my mind because it would have to make a 50% move by April 17th. Not impossible but I was really wasn’t watching the April 190 calls (HJQDR, $1.05, up $0.95) yesterday morning.
Funny thing happened though. When the president came out and mentioned the word “solar”, this stock took off like a rocket. The calls options I just mentioned opened at 30 cents Thursday morning and had closed at 10 cents on Wednesday.
Basically that means if you were quick enough to see that action you could have bought 50 call options at 30 cents a contract which would have cost you about $1,500 (50 contracts x .30 x 100). A couple of hours later you could have sold these calls for a high of $2.95. In others words, that $1,500 had the potential to make you $15,000. Wow. Think about that for a minute. If you had bought just 10 contracts for $300, it could have been worth $3,000. That my friends is the pot of gold that lies at the end of the rainbow sometimes.
I didn’t get in on this trade but I was this close to bagging a 3,000% return… Now do you see why options are the most powerful tool ever for making money?
I’m not sure if I’ll post anymore today as I’ve got a full plate but watch Chipotle Mexican Grill (CMG, $70.75, up $5.29). It’s an old favorite of the blog’s and lately this stock has also been lightning out of a bottle. The April 75 calls (CMGDO, $1.10, up $0.80) were up 265% on Thursday and could have more room to run. If they come down to 95 cents, start half positions.
Also, watch Amazon.com (AMZN, $73.69, up $1.29). The April 80 calls (ZQNDP, $1.65, up $0.30) traded as high as $2.10. Amazon could make a run to $80 next week where it might run into resistance but if these calls can trade down to $1.20-$1.30 then you could also think about a half small position in these options as well. I love the Kindle, Amazon’s new wireless reading device. This thing could be a huge success much like the iPod is. It’s $359 a pop which will add serious bucks to Amazon’s bottom line and could be Border’s (BGP, $0.70, up $0.07) final nail in the coffin…
And finally, I have a limit order to buy 15 options on the Mosaic (MOS, $48.20, up $2.73) April 60 calls (MOSDL, $0.55, up $0.35) at 60 cents. I recently profiled a Potash (POT, $89.30, up $5.78) trade on the April 100 calls (PYPDT, $3.00, up $1.75) which were stopped out for a loss. They were profiled at $1.70 and sank below a $1 which forced us out of the trade. The Mosaic trade may be a little of a gamble but we have three weeks for the stock to make a run past $60.
I’ll be back Sunday night and if you haven’t signed up for the Weekly Wrap, scribble your email address in the sign-up box right above my mugshot.
Special Notice: I have nearly completed a trading manual/ course that will be giving away all of my secrets (sly grin) and we plan on having it ready soon. I’m not sure of what the price is going to be but I would like to offer my longtime readers a super duper discount. Even for the newbies, I’d like to extend the same offer. The trading manual will cover things like how to open a trading account, how to find trades, understanding charts, and so much more. I am taking reservations now and will keep a list of those who email me. There is no obligation to buy, I just want to give everybody this special deal because the demand for me to write a trading manual has increased weekly since I started the blog 1 year ago. So send me an email if you are interested and also share with me what you like or don’t like about the blog and anything else you feel like downloading on me. Have a good weekend and I’ll see you Sunday night…]]>