1:30pm (EST)
The market is following yesterday’s pattern of trading in a tight range although the bias has been to the downside. There is still some nervousness over Egypt as the protests have escalated and turned more violent. This situation still bears watching and will weigh on the market as the political instability could potentially spread to other countries. On the plus side, were are hearing some banks are trying to open in Egypt by Sunday and when the country decides to go back to work, the market could soar.
We mentioned Green Mountain Coffee Roasters (GMCR, $38.37, up $5.41) this morning and a strangle option trade on our Watch List we had profiled. There were two reasons we liked this trade. One was that the stock had been in a “trading range” of $34 to $38 for months and we knew their earnings announcement could be the possible catalyst for a major breakout or breakdown.
We were expecting shares to make a run at $40 and we initially thought of going long the Green Mountain March 36 calls (GMCR110319C00036000, $3.75, up $2.45) which closed at $1.30 yesterday. A 10 contract trade would have cost you $1,300 before Wednesday’s close and would have netted you nearly a 190% return as a straight-up play.
We also added the Green Mountain March 30 puts (GMCR110319P00030000, $0.25, down $1.15) as insurance in case we decided we wanted protection. These options would have cost you $1.40 going into the close or $1,400 for 10 contracts. If you only bought puts yesterday then you are feeling some pain as they are down over 80%.
If you bought both contracts (calls and put options) your cost was $2,700. At current prices your return is 48% as the calls are worth $3.75 and the puts are worth $0.25. Of course, there is a big difference in all three strategies but the strangle option trade was the “safest”.
We have recommended these types of trades in the past and the beauty of them is that sometimes you can make money on BOTH sides of the option. For instance, if Green Mountain reversed course on a major, negative headline and shares fell near $30 then the put options might make a comeback.
Of course, Green Mountain shares have the potential momentum to power much higher after breaking out of its trading range.
If you are serious about learning more on how to find and profit from these types of trades then we urge you to consider one of the fasting-growing options trading courses on the market today, How to Trade Options on Momentum Stocks. If you have further questions, email us. We will offer you an incredible deal.
Although the market is trading slightly lower, we feel like the bulls are telling us they are going to hold support and push us higher. We are running a little late today because we wanted to listen to Ben Bernanke, who started speaking at 1pm, to make sure he didn’t blow the bulls’ current rally. He just finished up and the market is still flat. All good.
Currently, the Dow is down 2 points to 12,040 while the S&P is off by a point to 1,302. The Nasdaq is down less than a point at 2,748. Subscribers, check the Members Area for the trade updates.
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