9:00am (EST)
The market traded in a tight range on Wednesday but we pretty much had penciled in a flat day before the open after Tuesday’s big pop. We were looking for the major indexes to hold support, which was resistance, in terms of the technical picture and that we got.
The Dow traded to a low of 12,018 and spent much of the session on both sides of the ledger but the bulls managed to hold down the 12,000 level. The index was able to squeeze out a 2 point gain and closed at 12,041 and traded up to 12,057 intraday. We are still on track for 12,300-12,350 over the near-term as long as our new “support” level holds.
The S&P ended in the red, falling 3 points to 1,304 but also held its new support level of 1,300. Although the bulls spent all day with three fingers in the air, through rough waters, they didn’t go under and held onto the raft. We are still looking for a print of 1,325.
The Nasdaq showed some strength but finished in negative territory after reaching a high of 2,758. The index slipped a little over a point and settled at 2,749. As long as Tech holds 2,675-2,700 then the bulls still have a shot a 3,000.
We mentioned yesterday we were watching a few earnings announcements after the close and we were all over Green Mountain Coffee Roasters (GMCR, $32.96, down $0.29) in our Weekly Wrap. We broke the stock down like a rented mule and said they would beat earnings in our opening paragraph but we were a deer in headlights when came time to doing an option trade.
We had the stock and call options on our Watch List and we were bullish on shares making a run at $40. However, Green Mountains’ past accounting issues made it hard for us to trust the stock as a straight-up earnings trade.
We also added some put options on Monday and we were thinking of doing a strangle option trade but we thought why bother with the bulls breaking through resistance.
Strangle option trades are also known as “chicken trades” and they can make you 10%-20% if the stock moves 10%. They are considered “safe” option trades if you are unsure of a stock’s direction or what might happen after an earnings announcement. If shares stay flat then you may lose a little of the premiums you paid for the options but overall these strategies can be pretty solid if you use them right.
If the stock manages a bigger move, say 15%-20%, then the strangle option trade might make you 50%. You could also use a 2-to-1 ratio to leverage the trade more to one side but it adds more risk.
To make this long story short, Green Mountain ended up beating Wall Street’s expectations and shares zoomed in after-hours last night. The stock was up 17%, or $5.58, to $38.54. We may cover the options we have on our Watch List to provide you with a better visual in our 1pm update and although the trade wasn’t an official recommendation, some of our option course subscribers are learning how to use these types of trades to enhance their overall returns for their portfolios.
We received quite a few thank you notes from teaching this in our options trading manual, How to Trade Options on Momentum Stocks, last night/ this morning and we could feel their excitement. Folks, if you are serious about finding your own trades and learning how the market works, then we urge you to read more on what our option course has to offer.
There is a lot more we want to talk about but we are anxious to get our subscribers into the Members Area. Futures are pointing towards a lower open: Dow (-18), S&P 500 (-3), Nasdaq 100 (-7). We will be back at 1pm.
]]>