8:00am (EST) Sorry for the delay on this one. Lost my Internet connection for awhile last night due to a nasty storm… The market continued its yo-yo ways as the Dow added 57 points to finish above 8,500 on Wednesday. We were much higher in the morning as the Dow traded above 8,600 but after a couple of hours we spent much of the day drifting lower. The lack of volume was apparent again and this is one thing I talked about earlier in the week. I told you we could have a bullish week leading into 2Q earnings but I’m keeping a close eye on the volume to see if this picks up. If we can get some good earnings numbers, backed by strong volume, we could see the Dow over 9,000 in the coming weeks. Then again, there is the chance we go lower or still stay in a sideways range. The first clue we will get as far as direction goes will come next Wednesday. Write this down on a post-it note and put it on your computer…Alcoa (AA, $10.35, up $0.02) will officially kick off 2Q earnings season as the stock always does each quarter. Some interesting things from Wednesday: American International Group (AIG, $18.08, up $16.92) soared nearly 1,500%…that looks shocking, huh? Well, that’s how some financial sites are showing the quote. My brokerage account shows a quote of $18.08, down $5.12. Either way, it looks like the “old” options were wiped out after the 1-for-20 reverse stock split took place. The only options I could find were on the CBOE but they were single digit calls and puts. When a company does a reverse split, they normally don’t turn out to well, meaning, the fundamentals haven’t changed. If the fundamentals or outlook hasn’t changed, what makes the stock attractive? AIG was one of the biggest trades I profiled last year and here were my thoughts. (Quotes are from September 15th, 2008): “It was a bad day on Wall Street with the Dow dropping 504 points but it was even worse for American International Group (AIG, $4.76, down $7.38). The company said it would need $40 billion or more to fix its balance sheet and New York regulators gave AIG special access to $20 billion of cash held by its subsidiaries. On August 26, I mentioned we could see AIG’s stock fall and that the September 18 puts (AIGUS, $13.05, up $6.35) looked good at around $1.30. That was an understatement as the put options have now returned 885%. Although AIG’s shares have fallen with the rest of the financial stocks, AIG has a significant amount of quality assets it can sell. The stock fell 45% last week and today’s 60% drop is being viewed by Wall Street as an “overreaction.” Call it what you want but when a stock falls from $70 to under $5 it’s hard to rally behind it. What was really funny is the analyst who downgraded the stock to “Hold” from “Buy,” and lowered its price target on AIG to $14 from $25.50. While there’s a good chance AIG will survive I wouldn’t recommend getting into the stock at any level. The financial stocks have all taken a beating and it has a lot of individual investors worried to the point where they are selling everything. That’s sad because even though the Dow fell 500 points we have been making a mint by buying puts.” (END) Whoever that analyst was, I wonder if they still have a job? I could smell the smoke before the fire which is why we did so well with this trade. If you want to read the other blogs on AIG, just type it in the “search” box up on the left. I’m not sure if we get a repeat performance if and when they do list options on the stock again but there may be an opportunity down the road to make something on a stock worth much of nothing. Speaking of road, did you see the action in Ford (F, $5.91, down $0.16) yesterday? Man, talk about selling the news. The stock traded as high as $6.25 in the morning but sold off after Ford announced sales were down 14%. However, Wall Street was expecting sales to be down 17% so the company beat on those numbers. Investors just took profits after three days of strong gains. The bigger story is that Ford is gaining market share and has done a great job of reducing its inventory. And all signs are pointing to a super back-half of the year. The December 6 calls (FLI, $1.10, down $0.08) traded to a high of $1.25 while the December 7 calls (FLJ, $0.74, down $0.01) made it to 81 cents. I still like them both. Bank of America (BAC, $13.05, down $0.15) had the same thing happen to it after racing to $13.45 after the opening bell and actually finished lower. We are in the November 15 calls (BYOKO, $1.20, down $0.08) which traded to a high of $1.35 but the action was in the July call options. I said there would be an opportunity to “day trade” options this week because of the expected bullishness but we haven’t gone “long” on any trades that weren’t already opened. The BofA July 13 calls (BYOGM, $0.72, down $0.02) opened at 77 cents and traded as high as 92 cents. The thing to remember is that you are only trying to hit “singles” this week, not homeruns. Green Mountain Coffee Roasters (GMCR, $60.06, up $0.94) managed to hold $60 after busting through this level right out of the gate. The July 60 calls (QGMGL, $2.65, up $0.35) were profiled on Tuesday at $2.00 at 11am (EST) and I know I said not to leave anything open but these babies OPENED at $3.40 on Wednesday. Folks, that is a 70% pop in less than 24 hours. The August 65 calls (QGMHM, $3.55, up $0.15) were trading for $2.90 and they hit a high of $4.00 yesterday. If you do 10-lot trades then you did well with these plays. If you are still in them, CLOSE them out TODAY. We have three-day weekend coming up. The big thing we are looking for today is the jobs number once again. Wall Street is bracing for double-digit unemployment and the news will certainly shape today’s landscape. We are off on Friday so I will only be doing one more blog today before getting ready for the holiday weekend…probably around lunchtime, look for an update. Rick Rouse Rick@MomentumOptionsTrading.com]]>
