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Mornin’ Folks,

 

One thing I didn’t go in-depth on last night was the Fed meeting.  I mentioned if we would have gotten some stronger words, the bulls would’ve jumped on the wave and all the stars were aligned for us to have a huge pop.  However, just before 2pm and the big Fed announcement there was an attack on Ben Bernanke and the words “cover up” were being echoed across Wall Street.

 

This could get interesting as Big Ben will be facing the House Oversight and Government Reform Committee today.  Basically, it all comes down to what role he played in Bank of America’s (BAC, $12.35, up $0.12) takeover of Merrill Lynch.  I don’t normally monitor these types of events but I may grab a cup of java and listen in.  This won’t be O.J. material but it will have the feel of some “court room” drama.  Somebody is going to be sweating bullets today…

 

I also mentioned the action in some of the stocks reporting earnings this week and we had another winner in after-hours trading last night.  Bed Bath & Beyond (BBBY, $28.39, up $0.65) was up 7% in extended trading to $30.06, up $1.67.  When the company reported three months ago, the stock jumped from $25 to over $31.  We have seen some bullish action in the companies that are beating earnings and if that trend continues when we get the flood in July, the bulls will seek higher ground. 

 

The bets were about even on the Bed Bath & Beyond July 30 calls (BHQGF, $0.76, up $0.18) and the July 25 puts (BHQSE, $0.36, down $0.14) as each option traded around 3,000 contracts.  It appears the call options are going to do well today and here is an example where another strangle option trade could have been used.

 

As you can see, there are so many ways to play options and when you get into credit spreads and iron condors it gets even more interesting.  Use these “pointers” as a way to start your own research.  Like I said, the trade was there.  I told you about the earnings announcements on Monday morning and you could have circled “BBBY” as a trade you could have researched.  I always get asked how do you come up with trade ideas and these are the tips of the trade.

 

Information and creativity are traits you will develop as your put together your own trading plan.  Collect as much information as you can on how options work and what moves them.  The biggest thing you are looking for when directional trading is price action. 

 

One last thing before we head into the opening bell…

 

Imax (IMAX, $7.14, up $0.19) was up sharply in after-hours to $7.44 and it appears investors finally might be rushing in to buy the stock.  If you have been a regular reader of mine, you know I have talked about the stock for the past few years and have recommended bullish option trades in the past.  Most recently, on May 6th, I had this to say (stock quote from that day):

 

” I have mentioned Imax (IMAX, $6.86, down $0.12) here in the blog numerous times and most recently on April 23rd. Back then, the stock was at $6.28 and hit a high of $7.19 yesterday before fading. The company will report earnings on Thursday and here is what we can expect.

 

The company is expected to post a loss of 8 cents a share compared to a loss of 25 cents a year ago. I have written more extensively on Imax in the article section of OptionsMentoring.com and here is my point.

 

Although I don’t actively buy stocks, there are some that offer tremendous trading opportunities. If you have been following a stock for three years you should know how it trades. Imax trades between $4 and $8 and it is a great way to add income to your portfolio on trading stocks you know.

 

On March 8th when I mentioned the stock, it was at $4.10. If you had bought a 1,000 shares of Imax at the time, you could have sold it yesterday for nearly a $3,000 profit in just two months. If you had bought 1,000 shares on April 23rd, you could have made a “G”.

Now, the key from here is to not buy the stock today but to wait and see how it reacts. If we get a dip below $6 we will have to see what the company says before deciding to get in.

 

For those of you who don’t have a lot of money to trade options (yet) you can always start off by building a portfolio of good, quality stocks that are “cheap” but with serious homerun potential. Imax has that potential.

 

If Imax ever turns a profit, this stock will easily trade in the double-digits.”  (END)

 

We could see some big volume today and I wouldn’t rush in at the open but I still like this play.  However, I’m also going to list some options that are a trade recommendation as well.  The July 7.50 calls (IMQGU, $0.25, up $0.05) traded over 200 contracts yesterday which is huge because there just hasn’t been any volume in the option chains. 

 

Looking further out, the September 7.50 calls (IMQIU, $0.70, unchanged) only traded 50 contracts while the December 7.50 calls (IMQLU, $1.25, up $0.10) traded just 20 contracts.  Out of the 3 choices I like the September 7.50’s the most because if Imax is going to make a move it will be over the summer when they have a couple of back-to-back blockbusters coming.  However, for 50 cents more you can buy three more months of time value if you go with the December call options and the call options would still double if Imax heads to $10.

 

If you do the September calls it also gives you a chance to play the upcoming earnings announcement which should be late July/ early August.  The company’s earnings have been improving but they just did a secondary stock offering.  They raised a bunch of cash so it will be interesting to see how much they burn while doing their rollout while at the same time how much they bring in with these blockbuster movies.

 

If you want to do further research just type in “IMAX” in the search box there on the left of this page and the past Blogs will rise on up.  I still think it is safer to play the stock instead of the options but the September 7.50’s will be worth at least $2.50 if Imax makes it to $10 by then.  That is over a 200% gain folks.  Yes, it is a gamble but look at the story.  Compelling.  Make sure you use LIMIT ORDERS if you do enter the trade.  This trade is High Risk/ High Reward and should be used for specualtive accounts only.

 

 

Rick Rouse

 

 

P.S. Big ups to the US soccer team for beating the #1 team in the world, Spain, to make it to the finals.  Nice!  Sunday at 2pm (EST), be there or be square!