9:00am (EST)
Futures are pointing towards a negative open after Durable Goods orders came in lower than expected. Dow futures are down 38, S&P 500 index futures were down 6, while Nasdaq futures were down 7.
I mentioned the bulls were trying to hold Dow 9,000 and with earnings season nearing a close the bulls are looking for the next catalyst.
Bank of America (BAC, $13.34, up $0.25)
November 15 calls (BYOKO, $1.00, up $0.05)
Entry Price: $1.50 (6/12/09)
Exit Price: $2.25
Return: -33%
Stop: If BAC falls below $11, close the position.
Action: This position has gained over 30% since Sunday night’s Weekly Wrap but is still down from an entry price of $1.50. Open Interest continues to build in the November options as the 15’s have an OI of over 100,000 contracts. That means there are a lot of bets being placed at the $15 strike and they are very liquid. This is great if you are trading 50 or 100 lot contracts. I still like current positions at these levels.
For our new subscribers, BofA was below $5 on March 11th when I recommended a couple of call options, May 6’s and July 10’s. They returned 400% and 500% as BofA stood at $10 a month later. If you do the math and the stock doubles from here it puts BofA at $26. These calls would be worth $11 and you would have a 1,000% return on you hands. Anything is possible, right? However, all we are looking for is a run past $15 so we can double or triple or money. (PS, if you haven’t gotten my track record for 2009 or 2008, email us by going to the website and sending us a request)
Cisco Systems (CSCO, $21.93, up $0.09)
October 20 calls (CYQJD, $2.50, up $0.05)
Entry Price: $1.50 (6/2/09)
Exit Price: $3.00
Return: 67%
Stop: $2.00
Action: Tech held up well on Tuesday and Cisco traded up to $21.99. The 52-week high is $25.25 which is my target for the stock. The options traded as low as $2.16 so we will keep the $2.00 stop in place.
Green Mountain Coffee Roasters (GMCR, $67.50, down $0.25)
August 80 calls (QGMHP, $1.50, down $0.10)
Entry Price: $1.40 (7/27/09)
Exit Price: $2.10+
Return: 7%
Stop: $0.70
Action: The goal is to be out of this trade by the closing bell. We will be watching this one all day as the company reports earnings after the bell today. These options are inflated meaning the premiums are rich so be careful with this one. If you can escape with a gain, even if it’s 10%, it may be better than leaving this one open.
Buffalo Wild Wings (BWLD, $39.32, up $2.21)
August 40 calls (BQUHH, $1.25, up $0.01)
Entry Price: $1.10 (7/27/09)
Exit Price: $1.50 (7/28/09)
Return: 36%
Stop: CLOSED
Action: I told you the best time to sell is at the open and these calls traded as high as $1.60. The first 20 minutes are when the sharks are in the water and we all know sharks usually win these battles. I can’t stress this point enough to the beginners we have on board. If a stock is hot, the best time to sell is shortly after the bell because all of the rookie options traders were in there BUYING these call options on Buffalo reporting and beating Wall Street’s estimates. Each earnings trade is different as you will see and it’s best to have a plan going in and an exit on when to close the trade.
This trading tip is invaluable.
Cerner (CERN, $64.18, down $0.81)
August 70 calls (CQNHN, $1.20, down $0.15)
Entry Price: $1.30 (7/27/09)
Exit Price: $2.20
Return: -8%
Stop: $0.65
Action: Cerner got a 50 cent pop at the open and these call options trades as high as $1.50. The company reports after the bell on Wednesday.
Another point I want to make is how some option traders will only look for a 20 or 30 cent move in an option and then sell it. If you buy 20 contracts and an option goes up 30 cents in price you have made $600. Do it twice a week and you are making $50,000 a year. Hard but not impossible.
I’m throwing all of this information and tips at everybody this morning because I’m trying to teach you how to use options and the many different ways people trade them. What kind of profits you want to make is up to each trader. And each trader’s strategy is different. Some people like straddles and strangles, some investors write covered calls while others get naked. “Naked” option trading is not my game but all it means is that you are taking on a ton of risk.
Microsoft (MSFT, $23.47, up $0.36)
August 23 calls (MSQHQ, $0.98, up $0.23)
Entry Price: $0.78 (7/27/09)
Exit Price: $1.60
Return: 26%
Stop: $0.30
Action: Well, well, well…Yesterday I said “these calls options are technically in-the-money and we only need the stock to recover by 5% to make a decent return off of the trade.” Microsoft was in the red all morning but made a comeback along with the Nasdaq. The stock only made a 1.5% gain but the options gained 30%. Again, it was a short-term trade and I wanted to be out Friday. Hopefully we can ride this one a little higher but 25% is 25%.
IBM (IBM, $117.28, down $0.35)
August 105 calls (IBMHA, $11.69, down $1.17)
Entry Price: $3.40 (7/14/09)
Exit Price: $12.00 (7/24/09 1/2 the trade was closed)
Return: 253%
Stop: $11.00
August 115 calls (IBMHC, $3.70, down $0.40)
Entry Price: $1.05 (7/16/09)
Exit Price: $2.00 (7/24/09 1/2 the trade was closed)
Return: 281%
Stop: $2.00-$2.25, raise to $3.25
Action: We closed half of each side of these call options to make it a risk free trade from here on out. Our stops are in place and you’ll notice I raised the stop on the August 115’s. IBM has made a nice run but $118 is the new hurdle. The stock was down 60 cents in after-hours so we may be close to getting stopped out on the other half of the trade.
Visa (V, $66.30, down $1.89)
August 70 calls (VEHHN, $1.30, down $0.50)
Entry Price: $1.60 (7/27/09)
Exit Price: $3.20
Return: -19%
Stop: $0.80
Action: Visa will no doubt be the crown jewel of announcements on Wednesday. On Monday, the company said it would “continue to meet or exceed” Wall Street’s expectations. The numbers we want to watch for after the close is 64 (cents a share) and $1.63 billion on the revenue side. Warning: If Visa misses or doesn’t impress the Street then these options will drop like a rock if the stock heads south.
DryShips (DRYS, $6.79, down $0.29)
August 7 calls (OOCHJ, $0.50, down $0.15)
Entry Price: $0.25 (7/21/09)
Exit Price: $0.65 (7/27/09)
Return: 160%
Stop: CLOSED
September 7.50 calls (OOCIU, $0.60, down $0.13)
Entry Price: $0.35 (7/21/09)
Exit Price: $0.70
Return: 71%
Stop: $0.40, raise to 50 cents
Action: I don’t like giving gains back which is why we closed the August calls on Monday for a 160% return. The September call options had given us over a 100% gain and our stops were set just above our entry point to protect profits. I didn’t like the action in DryShips yesterday which is why I raised the stop. These calls hit a low of 45 cents on Tuesday so if DryShips doesn’t rebound we will let the market take us out with a small profit. This is exactly why we sold the August options. DryShips is a very liquid stock capable of making huge moves but let’s take what the market gives us.
Ford (F, $7.14, down $0.13)
December 6 calls (FLI, $1.63, down $0.07)
Entry Price: $1.25 (5/18/09)
Exit Price: $2.50
Return: 30%
Stop: $1.00, raise to $1.45
December 7 calls (FLJ, $1.06, down $0.01)
Entry Price: $1.00 (5/18/09)
Exit Price: $1.50-$2.00
Return: 6%
Stop: 50 cents, raise to 75 cents
Action: It is looking as though Ford is trying to build a solid base at the $7 level which would be perfect for this longer-term play. If we can build a base at $7 then move towards $8-9 then were are golden.
Check back after lunch for an update on today’s action.
Rick Rouse
