September 2009 | Members

9am (EST)

Current Trades

Nike (NKE, $60.09, up $1.09)

October 60 calls (NKEJL, $2.00, up $0.40)

Entry Price: $1.65 (9/29/09) 

Exit Target: $3.00-$4.00+

Return: 21%
Stop:  There was no stop for this trade but place one at $2.75 (see notes)

Action:  So far, Nike has not let us down.  Anytime you play an earnings announcement it is usually an all-or-nothing trade.  They are hard to predict but sometimes the right ones will reward you for your homework.

I didn’t have time to go through the entire process of the trade in the 1pm update on Tuesday but Nike made a huge breakout if the after-hours gain from last night holds.  Shares rallied to $63, up $2.91, in extended trading and if you pull up a one-year chart for the stock it looks like this:

 Chart for Nike Inc. (NKE)

This chart clearly shows the “resistance” the stock had at $60.  The market hasn’t officially opened this morning but if the gains hold, the stock would be considered “breaking out” or headed to “Bly Sky Territory” as Wall Street would say…

I cannot stress how important it is to use “support” and “resistance” lines and don’t let the terms intimidate you.  If you have a black pen, draw a straight line right across the $60 level and go back to it tonight to see the “breakout”.  That was resistance.  Support is simply when you can draw the same line and a stock breaks below that line. 

These options traded over 20,000 contracts yesterday and I had mentioned how volume was outpacing Open Interest which stood at 7,000.  That was nearly 3x the OI which I said is usually a bullish sign. 

If the stock opens at $63 or higher then these call options will be worth at least $3, if not $4 when we open.  It is usually wise to sell into strength although if this is a breakout then you may want to keep a little on the table.  Watch how we open and I would consider entering a SELL TO CLOSE order for all once we are over $4.  That would mean nearly a 150% profit from our entry price.

However, if we open at $3, use the stop of $2.75 to lock in gains and raise your stop along the way to lock in even further profits if Nike continues higher throughout the day.  That way, if we do get over $4 we can ride it that way and maybe even higher.

It is hard to predict exactly where the call options will open but I think I have covered everything.  You will have to watch these options as soon as the stock opens to see where they go and how they are trading. 

Trades like this make for a great opening bell, huh?

United States Steel (X, $45.56, down $0.75)

January 55 Calls (XAK, $2.35, down $0.15)

Entry Price: $2.55 (9/28/09) 

Exit Target: $2.65

Return: 4%
Stop:  CLOSED 

Action:  Not on our watch Goldman Sachs (GS, $182.50, up $3.00)…

Most of you were able to escape with a small gain or loss which isn’t bad considering the circumstances.  We were lucky enough to get a decent open on Tuesday as the calls opened at $2.55 and traded to a high of $2.70. 

We will have to see if Goldman was right on this one and maybe they are.  If so, they saved us some money.  Which brings up a good point.  Any time a trade takes a turn for the worse OR you don’t like something about the trade, don’t keep it open.

There are trades every day and it’s best to get out of the ones that make you nervous or close the ones where the landscape has changed.  Speaking of which…

Moody’s (MCO, $20.81, up $2.04)

October 17.50 puts (MCOVW, $0.35, down $0.50)

Entry Price: $0.75 (9/24/09) 

Exit Target: $0.50  

Return: -33%

Stop:  CLOSED

Action:  This was why I raised the stop BEFORE the market opened yesterday in the 9am morning update.  I always warn you of “buying the rumor and selling the news” events and Moody’s has worked the exact opposite heading into today’s hearings. 

The stock opened in the green and started upwards as soon as we opened.  The put options opened at 75 cents which would have been a great exit and many of you may have closed the trade once you saw the strength.

The stop of 50 cents saved us from getting stopped out at 30 cents, hoping for a rebound.  The trade may still do well but Moody’s was just too volatile to leave this one open.  I would rather take a 30% loss than a 50% loss any day of the week but it will be disappointing if we miss out on any gains. 

Citigroup (C, $4.70, up $0.13)

January 7.50 calls (CAQ, $0.13, up $0.02)

Entry Price: $0.32 (8/28/09)

Exit Target: $0.64

Return: -59%
Stop:  None  

January (2011) 10 calls (VRNAB, $0.42, flat)

Entry Price: $0.60 (8/28/09) 

Exit Target: $1.20

Return: -30%
Stop: None

Action:  Continue to hold.  

Imax (IMAX, $9.43, up $0.63)

March 2010 12.50 calls (IMQCV, $0.40, up $0.20)

Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Return: -11%

Stop: None 

Action:  Continue to hold.

Sirius XM (SIRI, $0.62, up $0.02)

December 1 calls (QXOLA, $0.05, flat)

Entry Price: $0.15 (8/21/09)
Exit Target: $0.30
Return: -67%
Stop: None

Action:  Continue to hold.